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Conflicts of Interest: A Practical Roadmap McGuireWoods LLP Hypotheticals and Analyses T. Spahn (1/1/20) Master

CONFLICTS OF INTEREST: A PRACTICAL ROADMAP

Hypotheticals and Analyses*

Thomas E. Spahn McGuireWoods LLP

* These analyses primarily rely on the ABA Model Rules, which represent a voluntary organization's suggested guidelines. Every state has adopted its own unique set of mandatory ethics rules, and you should check those when seeking ethics guidance. For ease of use, these analyses and citations use the generic term "legal ethics opinion" rather than the formal categories of the ABA's and state authorities' opinions -- including advisory, formal and informal. ______© 2020 McGuireWoods LLP. McGuireWoods LLP grants you the right to download and/or reproduce this work for personal, educational use within your organization only, provided that you give proper attribution and do not alter the work. You are not permitted to re-publish or re-distribute the work to third parties without permission. Please email Thomas E. Spahn ([email protected]) with any questions or requests.

124868322_1 Conflicts of Interest: A Practical Roadmap McGuireWoods LLP Hypotheticals and Analyses T. Spahn (1/1/20) Master

TABLE OF CONTENTS

Hypo No. Subject Page

Adversity to Current Clients: General Rules

1 General Rule -- Adversity to Current Clients…………………………. 1 2 Conflicts Arising in the Course of a Representation………………... 4

Definition of "Client"

3 Government Entities………………………………………………………. 14 4 Partnerships………………………………………………………………… 20 5 Associations………………………………………………………………... 24 6 Insured/Insurance Company…………………………………………….. 28 7 Estates……………………………………………………………………….. 52 8 Bond Counsel………………………………………………………………. 56

Definition of "Client" in a Corporate Setting

9 Identifying the Client Within a Corporate Entity……………………... 57 10 Resolving Intra-Corporate Disputes……………………………………. 69 11 Identifying the Client Within a Closely Held Corporation………….. 74 12 Identifying the Client Within a Corporate Family: Outside Lawyers' Issues……………………………………………………………. 111 13 Identifying the Client Within a Corporate Family: In-House Lawyers' Issues……………………………………………………………. 134

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Hypo No. Subject Page

Definition of Adversity

14 Business Adversity……………………………………………………… 140 15 Adverse Financial Impact………………………………………………. 147 16 Discovery of Clients……………………………………………………... 150 17 Positional Adversity……………………………………………………... 169

Adversity in Joint Representation

18 Joint Representations: Basic Rules………………………………….. 173 19 Creditors……………………………………………………………………. 194 20 Opposite Sides of the Same Transaction…………………………….. 197 21 Opposite Sides of the Same Litigation………………………………... 209

Adversity to Former Clients: General Rules 22 General Rule -- Adversity to Former Clients………………………….. 216 23 Defining the End of a Relationship……………………………...……… 223 24 Irrelevance of the Time since the Representation Ended………….. 241 25 Irrelevance of the Representation's Duration………………………… 246

Applying The Former Client Information-Based Conflicts Analysis 26 Meaning of "Substantial Relationship"………………………………... 250

27 "Playbook" Information…………………………………………………... 260

Material Limitation Conflicts

28 Information-Caused Conflicts Not Involving Direct Adversity to 268 Current or Former Clients……………………………………………….. 29 Conflicts Caused by Information from Non-Clients………………… 274

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Hypo No. Subject Page

Withdrawal from a Representation

30 Ability to Withdraw from a Representation At Any Time If There is 286 No Prejudice………………………………………………………………… 31 Ability to Withdraw if the Client Does Not Pay Invoices……………. 288

32 The "Hot Potato" Rule…………………………………………………….. 292

Consents

33 Permitted Disclosure When Seeking Consents……………………… 314 34 Revocability of Consents………………………………………………… 322 35 Prospective Consents…………………………………………………….. 327

Disqualification

36 Disqualification – Standards…………………………………………….. 370 37 Disqualification -- Process and Effect…………………………………. 384

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General Rule -- Adversity to Current Clients

Hypothetical 1

You serve on a bar committee considering fundamental changes to your state's ethics rules. You have been asked to pick one of two basic conflicts rules that will govern a lawyer's adversity to a current law firm client.

What basic conflicts rule should apply to a lawyer's adversity to a current law firm client?

(A) A conflict exists only if lawyers at the firm are representing opposite sides in a transaction or in litigation.

(B) A conflict exists whenever a lawyer becomes adverse to a current law firm client, even on a matter totally unrelated to the law firm's representation of that client.

(B) A CONFLICT EXISTS WHENEVER A LAWYER BECOMES ADVERSE TO A CURRENT LAW FIRM CLIENT, EVEN ON A MATTER TOTALLY UNRELATED TO THE LAW FIRM'S REPRESENTATION OF THAT CLIENT.

Analysis

Lawyers' conflicts of interest rules often seem counterintuitive and much too severe. However, the ABA Model Rules and all but one state (Texas) apply a per se standard in the most common conflicts context.

Direct Adversity

The ABA Model Rules recognize what they call "a concurrent conflict of interest" if

the representation of one client will be directly adverse to another client

ABA Model Rule 1.7(a)(1).

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Lawyers' duty of loyalty to their clients prohibits any lawyer in a law firm from taking a matter adverse to any current law firm client on any matter, even if the matter bears no relationship whatever to the law firm's work for that client.

• ABA Model Rule 1.7 cmt. [6] ("[A]bsent consent, a lawyer may not act as an advocate in one matter against a person the lawyer represents in some other matter, even when the matters are wholly unrelated.").

• ABA Model Rule 1.7 cmt. [7] ("Directly adverse conflicts can also arise in transactional matters. For example, if a lawyer is asked to represent the seller of a business in negotiations with a buyer represented by the lawyer, not in the same transaction but in another, unrelated matter, the lawyer could not undertake the representation without the informed consent of each client.")

• ABA LEO 1495 (12/9/82) (without consent, a lawyer may not be adverse to a current client even on a matter unrelated to that on which the lawyer is representing the client).

The one jurisdiction taking a different position is (perhaps not surprisingly) Texas.

That state follows the ABA Model Rules in prohibiting lawyers from representing opposite sides of the same litigated matter, but otherwise apparently allows lawyers to take matters adverse to current clients as long as the matters are not "substantially related" to the matter then being handled by the lawyer for that client.

(a) A lawyer shall not represent opposing parties to the same litigation.

(b) In other situations and except to the extent permitted by paragraph (c), a lawyer shall not represent a person if the representation of that person:

(1) involves a substantially related matter in which that person's interests are materially and directly adverse to the interests of another client of the lawyer or the lawyer[']s firm; or

(2) reasonably appears to be or become adversely limited by the lawyer[']s or law firm's responsibilities to

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another client or to a third person or by the lawyer[']s or law firm's own interests.

(c) A lawyer may represent a client in the circumstances described in (b) if:

(1) the lawyer reasonably believes the representation of each client will not be materially affected; and

(2) each affected or potentially affected client consents to such representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages involved, if any.

Texas Rule 1.06(a)-(c).

Best Answer

The best answer to this hypothetical is (B) CONFLICT EXISTS WHENEVER A

LAWYER BECOMES ADVERSE TO A CURRENT LAW FIRM CLIENT, EVEN ON A

MATTER TOTALLY UNRELATED TO THE LAW FIRM'S REPRESENTATION OF

THAT CLIENT.

N 3/12; B 8/14

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Conflicts Arising in the Course of a Representation

Hypothetical 2

You have represented the developer of a proposed office building for several years. The key zoning hearing will take place two weeks from now. One of your partners received a call this morning from a nearby landowner (whom your law firm represents on one unrelated matter). The landowner wanted to hire your firm to appear at the zoning hearing and oppose the development. Your partner knew enough to turn down the representation, but now you wonder what effect the landowner's actions will have on your long-standing representation of the developer.

Without the other landowner's consent, may you represent the developer at the upcoming zoning hearing?

(A) YES

(B) NO

(B) NO (PROBABLY)

Analysis

Lawyers normally check for conflicts when starting a new matter for a new client

or an existing client. This obviously requires an accurate and complete database.

Some well-known law firms have been embarrassed (and worse) by incomplete conflicts databases or improper conflicts checks.

• FMS Inv. Corp. v. United States, 137 Fed. Cl. 99, 103, 104 (Fed. Cl. 2018) (disqualifying the Pillsbury law firm from pursuing a bid protest against a client the law firm represented on an unrelated matter; also holding that Pillsbury violated its duty of loyalty to the client by making disparaging comments to the Washington Post about a current client; explaining that Pillsbury missed the conflict because it had not updated client names in its database; holding that the client's disqualification motion was not barred by laches; “[T]he fact that Pillsbury does not represent Performant in this specific matter is irrelevant and does not diminish the nature or severity of the conflict; Pillsbury is still Performant's main corporate counsel and has been advising Performant on a wide range of matters, including issues related to the refinancing of debt ConServe allegedly ties to the appearance of a conflict of interest between Performant and Secretary DeVos in its complaint, since 2011.”; “In its

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response to Performant's motion to disqualify, Pillsbury explains to the Court that it ran an updated conflicts check against Performant after ED announced the results of its corrective action in January 2018. . . . The conflicts check returned a 'NO CONFLICT' result because Performant was formerly known as 'Diversified Collection Services, Inc.,' and its name had not been updated in Pillsbury's conflicts system. . . . The Court understands that conflict systems are not perfect, but the irony here is that Pillsbury was the very law firm that advised Performant on its name change in 2012. . . . At the very least, Pillsbury should have either updated its conflicts system in 2012 to reflect the name change or run an additional conflicts search for 'Diversified Collection Services, Inc.' knowing that the name change had taken place. To claim that Pillsbury should be in the clear because it received a 'NO CONFLICT' result simply does not hold water, especially given Pillsbury's knowledge of and advisement on Performant's name change.” (emphases added)).

• Madison 92nd St. Assocs., LLC v. Marriott Int'l, Inc., No. 13 Civ. 291 (CM), 2013 U.S. Dist. LEXIS 160290, at *3, *3-4, *10-11, *12-13, *19, *20 n.3, *20, *25, *26, *27, *28, *28-29, *29, *30, *32, *36, *37, *38-39, *41, *41-42, *42-43 (S.D.N.Y. Oct. 31, 2013) (severely criticizing the law firm of Boies, Schiller & Flexner (BSF) for not having recognized the conflict of interest; explaining that approximately ten years ago BSF represented Host Hotels [defendant] in a dispute with Marriott, which was resolved in a settlement about which Boies Schiller advised a Special Committee of Host's Board; explaining that in early 2013 Boies Schiller represented the owner of a Courtyard Marriott Hotel against Marriott and Host, alleging that the latter entered into a conspiracy in 2002 to arrange for some hotels to have unionized employees in some, and not to have unionized employees in others; concluding that "[a] clearer conflict of interest cannot be imagined. A first year law student on day one of an ethics course should be able to spot it."(emphasis added); "BSF, which holds itself out as one of the country's preeminent law firms, did not. Not when it undertook a representation that would inevitably attack its own work for Host. Not when its former client raised the issue -- which occurred as soon as Host learned that Plaintiff had retained BSF and read a copy of the draft complaint that its former lawyer had prepared. Not when Host's counsel in this lawsuit, the Proskauer Rose firm, formally notified BSF in writing that its prior representation of Host created a conflict. Not when the firm, after being warned about the conflict, filed a lawsuit containing allegations as to which its own attorneys (including quite possibly name partner David Boies, who billed time to both representations) were important -- indeed virtually necessary -- rebuttal witnesses. Not even when a BSF partner reviewed key documents, including a 23 page memorandum addressed to Host's general counsel, in which BSF opined that Host's Board [redacted in opinion]." (emphasis added); explaining Boies Schiller's initial conflicts check; "Before undertaking its representation of plaintiff, BSF's General Counsel, Nicholas Gravante, performed a 'conflict check,' which revealed that Host had been a client of the

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firm some years earlier. The record does not include much information about exactly what Gravante did next. It is clear enough what he did not do: he did not ask to review either the file or the billing records related to the earlier representation. He nonetheless concluded that the new matter was not the same or substantially related to the former representation." (emphases added); pointing to Boies Schiller's draft complaint, which referenced "secret meetings and negotiations in mid-2002" which amounted to a conspiracy, and also alleging "[t]hat Marriott and Host entered into such an agreement is confirmed by their subsequent conduct -- which is otherwise inexplicable.'"; concluding that "[i]t takes but a moment to recognize that these paragraphs accuse Host and Marriott of entering into an agreement in mid-2002 -- the very time when Host, advised by BSF, entered into multiple agreements with Marriott that restructured and extended their relationship -- which agreement committed it to 'otherwise inexplicable' conduct as part and parcel of a conspiracy to eliminate their non-unionized competitors. The coincidence in timing means that the purported conspiracy would at a minimum have been entered into in the context of the 2002 Settlement, and might well have been part of it, since the 'additional long term management agreements'. . . that were signed in the spring of 2002 were part and parcel of that settlement. It takes but another moment to understand that the lawyers who advised Host [redacted in opinion] and who helped draft the documents here under attack as dictating behavior 'inexplicable' except by reference to a RICO conspiracy, would be critical witnesses about the very matters asserted in these paragraphs. This is not ethical rocket science." (emphases added); explaining that Boies Schiller's deputy general counsel Magda Jimenez Train initially investigated the firm's former client (Host) allegation that the firm had a conflict when it confronted Host with a draft complaint (emphasis added); noting that Boies Schiller rejected Host's allegation of the conflict after consulting with an outside ethics expert Michael Ross (emphasis added); explaining that Jiminez Train conducted an electronic search of the files Boies Schiller had created during its earlier representation of Host; "Jiminez Train told Mr. Ross that the search of the firm's electronic billing records and files did not turn up any references to a 'labor conspiracy' in connection with the prior Host representation." (emphasis added); in a footnote, concluding that "[o]f all the assertions in the brief in opposition, this is by far the most absurd. Of course the billing records did not contain any references to a 'labor conspiracy.' I would be shocked to learn that an attorney employed by BSF would have written a diary entry indicating that he or she was advising a client about entering into a 'labor conspiracy.'" (emphasis added); noting that "no one seems to have comprehended that the absence of those labor-related terms from BSF's documents might have some bearing on the conflicts question."; explaining that Post retained the Proskauer law firm to represent it in confronting Boies Schiller with this complaint; noting that Jimenez Train began producing its historic documents from the earlier Host representation to Proskauer; "Jimenez Train avers, in her declaration to this court, that she

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reviewed those documents with 'enhanced care' before turning them over. . . . Either her definition of 'enhanced care' differs from mine or her statement is patently false." (emphasis added); explaining that it took Boies Schiller "a month to provide the first five of the '25 to 35' boxes of documents relating to the former representation that BSF possessed." (internal citation omitted); explaining that Jimenez Train had not completed reviewing all of the Boies Schiller documents on January 13, 2013, when "without any prior notice to Host, and while discussions concerning the conflict were ongoing -- BSF filed its complaint against Host in this Court. The complaint is essentially identical to the draft complaint that BSF had threatened to file several weeks earlier. The firm filed the lawsuit even though BSF knew full well that Host (and Proskauer) were reviewing the first files that BSF had produced and were awaiting the rest of the production. . . . Only after filing the complaint did BSF deliver the other 30 or so boxes of documents to Proskauer."; noting that Proskauer prepared a motion to disqualify, and then "proposed a final meeting with BSF and its outside counsel in a last ditch effort to avoid the need to file that motion." (emphasis added); noting that Proskauer made a presentation to Boies Schiller about its conflict, in an effort to convince Boies Schiller to withdraw from representing the plaintiff; "BSF offered no response to Proskauer's presentation -- except to ask for copies of the documents on which Proskauer had relied, all but one of which came from BSF's own files." (emphases added); using the following heading of the next section of the opinion: "Oh, THAT Conflict!"; explaining that two documents from Boies Schiller's own files made the conflict apparent, as explained by the Proskauer firm; "[A] lawyer from a firm that had no connection with BSF's earlier representation had to point out the obvious before anyone from or representing BSF would acknowledge the multi-faceted conflict."; finding a substantial relationship between Boies Schiller's earlier representation of Host and the current case against it; "BSF's involvement in negotiating, papering and blessing a settlement that it has now painted as an unlawful racketering and antitrust conspiracy clearly shows that its recent representation of Madison was substantially related to the firm's prior engagement with Host." (emphasis added); "BSF's conduct in the instant matter is infinitely more egregious than that of the conflicted counsel in Life Fitness [Life Fitness, Inc. v. Sears, Roebuck & Co., No. 88 C263, 1988 WL 37835 (N.D. Ill. Apr. 21, 1988)] and THOI [sic] [THOIP v Walt Disney Co., No. 08 Civ. 6832(SAS), 2009 WL 125074, at *4 n.51 (S.D.N.Y. Jan. 20, 2009)]."; "After retrieving its Host files (which it did only belatedly and in response to Host's demand for them, not because it thought it had any obligation to review the scope of its prior representation), BSF refused to turn them over until its deputy general counsel and outside ethics counsel could personally review them with 'enhanced care.' Yet these two experienced lawyers managed to miss the obvious conflict."; "BSF argues that it need not reimburse Host for its fees and costs associated with investigating the conflict and preparing the motion to disqualify because it withdrew immediately once Proskauer spelled out

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exactly what the conflict was. But BSF stands its ethical obligations on their head when it tries to hold its client responsible in these circumstances. BSF had in its possession every piece of information -- every document, every datum -- needed to ascertain whether a conflict existed. I have outlined above, in great detail, what BSF did and did not do with that information. Proskauer and Host should not have had to physically place the relevant documents under the noses of the lawyers who had purportedly reviewed them with 'enhanced care' weeks earlier. The evidence establishes that BSF either failed to undertake an appropriate investigation despite its representations to the contrary, or did so in the most cavalier manner, stringing Host along for weeks, and causing its former client to incur significant expense in trying to secure BSF's acknowledgement of what should have been obvious." (emphases added); "As for the document review that did take place: to describe is [sic] as incompetent is no overstatement."; "Figuring out the precise contours of BSF's former representation, and its relationship to a conspiracy that was supposedly being hatched at exactly the same moment, did indeed require some connecting of the dots. But BSF purports to employ some of the finest and most sophisticated lawyers in the country. Frankly, the conflict was 'subtle' only if one did not particularly want to see it; and from the first day of its 'investigation,' when Mr. Ross [outside expert retained by Boies Schiller] was given a ridiculously unduly narrow description of the scope of the firm's work for Host, until the very end, when BSF had to ask Proskauer for copies of its own damning documents, the evidence suggests to this court that BSF did not want to see it." (emphasis added); "The only inference I can draw from the record before me -- and it is a compelling inference -- is that BSF would not agree to withdraw until it was faced with the fact that Host was about to file a motion to disqualify on the public record. Because of BSF's adamant denials of a conflict, Host's attorneys were forced to leave no stone unturned in analyzing how a sophisticated law firm with outside ethics counsel could possibly have concluded, after an exhaustive investigation, that no conflict existed. Host was thus forced to incur significant expenses in preparing the motion to disqualify. Host should not be forced to bear this expense simply because BSF ultimately, and belatedly, conceded that it could not avoid the ethical constraint under which it labored." (emphases added)).

But lawyers should remember that conflicts can arise at any time during a representation.

• FMS Inv. Corp. v. United States, 137 Fed. Cl. 99, 104 (Fed. Cl. 2018) (disqualifying the Pillsbury law firm from pursuing a bid protest against a client the law firm represented on an unrelated matter; also holding that Pillsbury violated its duty of loyalty to the client by making disparaging comments to the Washington Post about a current client; explaining that Pillsbury missed the

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conflict because it had not updated client names in its database; holding that the client's disqualification motion was not barred by laches; “Pillsbury further argues that it should not be disqualified from representing ConServe in this bid protest because this conflict arose in the middle of Pillsbury's representation of ConServe – as ConServe retained Pillsbury in December 2016 at the outset of ED's solicitation – and should therefore be treated as a 'thrust upon' conflict.”; “While the Court acknowledges that it is difficult to foresee how the parties may realign in a bid protest, it is certainly foreseeable that they would realign in a bid protest, especially in one involving an IDIQ contract with multiple offerors and awardees like the one at issue here. Pillsbury's claim that it could not have possibly foreseen an eventual realignment of parties in this litigation at the outset of this bid protest -- particularly in a bid protest that appears to have an affinity for corrective action – is ignorant and careless. Awards are granted, awards are challenged, corrective action is taken, new awards are granted, new awards are challenged, plaintiffs become defendant-intervenors and vice versa, and the cycle repeats; such is the life of a bid protest in this Court.”; “As a law firm with a plethora of experience in bid protests and government contracts, Pillsbury should know this cycle well and should have known that ConServe's and Performant's interests could have easily diverged at some point in this litigation as this rather knotty procurement marched on.” (emphasis added)).

This hypothetical comes from a July 2009 Philadelphia legal ethics opinion.1 In

Philadelphia LEO 2009-7, the bar held that the situation did not involve a "thrust upon"

1 Philadelphia LEO 2009-7 (7/2009) (analyzing a situation in which a law firm had "for a long period of time" represented the builder of a proposed office building, but learned two weeks before a scheduled zoning presentation that a neighbor of the building (whom the law firm represented on unrelated matters) opposed the project; explaining the effect of the later-developing conflict; "[I]t is apparent that at the moment when the Neighbor Client determined that he or she was opposed to the project, and so advised a lawyer at the firm, a conflict developed under Rule 1.7(a)(1) in that the representation of the Developer Client was at that point directly adverse to another client. As of that moment, then, the law firm and the clients faced a difficult situation. Plainly, the law firm did the right thing by telling both clients immediately of the conflict and declining to accept the representation of the Neighbor Client in opposing the application."; "But that does not entirely resolve the problem in that the Neighbor Client remains a client of the firm, albeit in an unrelated matter having nothing to do with the development project, and Neighbor Client remains opposed to the project on which the law firm would be advancing the interests of the Developer Client. Even if the Neighbor Client is not represented by the law firm, he -- either himself or with the assistance of another lawyer -- will continue opposing the project, perhaps even appearing at the very tribunal before whom a lawyer from the inquirer's firm plans to present the Developer Client's proposal and advocate for its approval over the opposition of the Neighbor Client and others. It is even possible that the Neighbor Client would testify as to his or her views regarding the matter and could even be cross-examined by a lawyer from the law firm."; explaining that the law firm had three choices: (1) withdraw from representing the developer in the project; (2) withdraw from representing the developer in litigation or some other administrative matters in which the neighbor might appear; (3) seek a waiver from the neighbor; explaining that the law firm might be able to arrange for some other lawyer to cross[-]examine the neighbor at any hearing; "[I]t could even reach the point where the Neighbor Client

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conflict -- which would relieve the lawyer of a duty to withdraw because the conflict

arose from an unforeseen client action.

The Committee does not believe that the thrust upon exception permits the law firm to withdraw from the representation of the Neighbor Client because the conflict that arose is not an 'unforeseeable development,' as that term is used in the comment. When the law firm accepted the representation of the developer with the idea of undertaking the project at issue, it was foreseeable that at some point in the future persons could emerge to oppose the project. That is inherent in a real estate development project over the time it is designed and promoted."; "It is true, of course, that the specific identity of such a client or clients may not have been ascertainable at the time of the Developer Client's engagement of the firm, but the Committee believes that under all the circumstances -- that is, where the law firm in question is large and has many clients, some of whom can reasonably be expected to live in proximity to the development project -- the development of such conflicts is not unforeseeable, and is a risk that law firms take on in the course of doing business.

Philadelphia LEO 2009-7 (7/2009).

The Philadelphia Bar addressed the issue as a regular conflict, although it arose

after the law firm had represented its developer client "for a long period of time."

would have to be cross[-]examined by a member of the law firm. That could perhaps be remedied by having any cross[-]examination handled by another law firm brought in for that purpose."; holding that the law firm could not drop the neighbor as a client in order to avoid a conflict; "The hot potato rule in general disallows a law firm from discharging a client for the purpose of eliminating a conflict where it desires to accept the representation of another client. This rule is a salutary one in that it prevents law firms from violating a duty of loyalty to a client that already exists in favor of a perhaps more lucrative client relationship."; finding the "thrust upon" doctrine inapplicable; "The Committee does not believe that the thrust upon exception permits the law firm to withdraw from the representation of the Neighbor Client because the conflict that arose is not an 'unforeseeable development,' as that term is used in the comment. When the law firm accepted the representation of the developer with the idea of undertaking the project at issue, it was foreseeable that at some point in the future persons could emerge to oppose the project. That is inherent in a real estate development project over the time it is designed and promoted."; "It is true, of course, that the specific identity of such a client or clients may not have been ascertainable at the time of the Developer Client's engagement of the firm, but the Committee believes that under all the circumstances -- that is, where the law firm in question is large and has many clients, some of whom can reasonably be expected to live in proximity to the development project -- the development of such conflicts is not unforeseeable, and is a risk that law firms take on in the course of doing business.").

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[I]t is apparent that at the moment when the Neighbor Client determined that he or she was opposed to the project, and so advised a lawyer at the firm, a conflict developed under Rule 1.7(a)(1) in that the representation of the Developer Client was at that point directly adverse to another client. As of that moment, then, the law firm and the clients faced a difficult situation. Plainly, the law firm did the right thing by telling both clients immediately of the conflict and declining to accept the representation of the Neighbor Client in opposing the application."; "But that does not entirely resolve the problem in that the Neighbor Client remains a client of the firm, albeit in an unrelated matter having nothing to do with the development project, and Neighbor Client remains opposed to the project on which the law firm would be advancing the interests of the Developer Client. Even if the Neighbor Client is not represented by the law firm, he -- either himself or with the assistance of another lawyer -- will continue opposing the project, perhaps even appearing at the very tribunal before whom a lawyer from the inquirer's firm plans to present the Developer Client's proposal and advocate for its approval over the opposition of the Neighbor Client and others. It is even possible that the Neighbor Client would testify as to his or her views regarding the matter and could even be cross-examined by a lawyer from the law firm.

Id. The Philadelphia Bar held that the law firm could not cure the conflict by dropping the landowner as a client.

The hot potato rule in general disallows a law firm from discharging a client for the purpose of eliminating a conflict where it desires to accept the representation of another client. This rule is a salutary one in that it prevents law firms from violating a duty of loyalty to a client that already exists in favor of a perhaps more lucrative client relationship.

Id.

The bar ultimately explained that the law firm had three choices: (1) withdraw from representing the developer in the project; (2) withdraw from representing the developer in litigation or some other administrative matters in which the neighbor might

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appear (although the law firm might be able to arrange for some other lawyer to cross-examine the neighbor at any hearing); (3) seek a waiver from the neighbor.

This frightening scenario highlights the need for lawyers to carefully check conflicts when they begin a matter, monitor the matter as it proceeds, and be prepared to deal with any conflict that arises during the course of the representation.

This type of last-minute conflict can arise in real life, not just theorized in a legal ethics opinion. In 2013, the Cooley law firm discovered that it had a conflict just a few days before it was to start a jury trial.

• Jan Wolfe, Did Conflicts Derail Patent Trial Against Research in Motion?, AmLaw Litig. Daily, Mar. 6, 2013 ("A team of patent litigators from Cooley LLP arrived Monday morning at the federal courthouse in Dallas prepared to kick off a jury trial against Research in Motion (RIM) Ltd. Instead, a judge postponed the trial and told the Cooley lawyers and their adversaries at and McDermott Will & Emery that they could go home."; "The lawyers won't tell us why the trial was called off, and the judge's one- paragraph order postponing the proceedings doesn't give a reason. But recently filed court papers do offer some clues, describing how Cooley may have discovered a crippling client conflict at the eleventh hour."; "Cooley's client in the case is Innovative Sonic, a non-practicing entity that claims RIM's Blackberry smartphones infringe three of its patents. But Cooley also has a longtime client relationship with Qualcomm Inc., which makes mobile chipsets that power some of RIM's Blackberry devices. Other Blackberry smartphones use chipsets manufactured by Marvell Technology Group Ltd. "; "The infringement suit against RIM involves Blackberrys with both types of chipsets. And that, according to an emergency motion Cooley filed on Sunday, turns out to be a big problem."; "The firm told United States District Judge Ed Kinkeade that a month before trial, RIM's lawyers made source code available to Innovative Sonic that RIM was supposed to have produced more than a year ago. Based on experts' review of the code, the Cooley lawyers argued in Sunday's motion that if infringement occurs in the Qualcomm-related devices, it occurs as the result of the operation of Qualcomm chipsets that aren't modified by RIM. That means that Innovative Sonic can't accuse RIM of infringement without also leveling the same accusation at one of Cooley's own clients.").

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Cooley's conflict appeared to involve a severe type of positional adversity

(involving factual rather than legal matters). However, last-minute conflicts can arise in more direct circumstances. For instance, lawyers representing a hospital in defending against a malpractice case might discover late in the discovery process that the individual responsible for some error was not employed by the hospital -- but rather worked for an independent contractor that the law firm represents on unrelated matters.

Because the lawyers' other client might face liability for its employee's error, the lawyers representing the hospital would be unable (absent consent) to pursue a legal remedy against the other client or even "point the finger" at the other client.

Best Answer

The best answer to this hypothetical is (B) NO (PROBABLY).

N 3/12; B 8/14

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Government Entities

Hypothetical 3

You joined your state's attorney general's office immediately after law school, and have developed an interesting practice representing state-operated colleges. One of your college clients just asked for your help in pursuing a matter adverse to another state entity (which funds and processes state employee health care claims). You have never worked for the state health care agency.

May you represent the state-operated college in a matter adverse to the state-operated health plan?

(A) YES

(B) NO

(A) YES (PROBABLY)

Analysis

The question here is whether a lawyer's representation of one arm of the government precludes the lawyer's involvement in matters adverse to other arms of the government.

As in all contexts, lawyers representing government entities must always know their client's identity.

• Helen W. Gunnarsson, Government Attorneys Need Clarity on Who the Client Is, 33 Laws. Man. on Prof. Conduct (ABA/BNA) No. 12, at 347 (June 14, 2017) ("For a government lawyer, the key to complying with ethics rules is knowing who the client actually is, according to a June 2 panel discussion at the 43rd National Conference on Professional Responsibility in St. Louis."; "'[G]overnment lawyers must have a clear understanding of who their client is and who speaks for their client,' moderator Stacy Ludwig said. She is director of the Department of Justice's Professional Responsibility Advisory Office." (alteration in original); "The answers to those questions determine who holds authority to direct litigation and approve settlements, and what information is confidential, the panelists agreed.").

The ABA Model Rules address this issue in a Comment.

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• ABA Model Rule 1.13 cmt. [9] ("The duty defined in this Rule [to an organizational client] applies to governmental organizations. Defining precisely the identity of the client and prescribing the resulting obligations of such lawyers may be more difficult in the government context and is a matter beyond the scope of these Rules. . . . Although in some circumstances the client may be a specific agency, it may also be a branch of government, such as the executive branch, or the government as a whole. For example, if the action or failure to act involves the head of a bureau, either the department of which the bureau is a part or the relevant branch of government may be the client for purposes of this Rule.").

The ABA discussed this issue in ABA LEO 405 (4/19/97).1 The ABA explained

that determining whether a lawyer may represent one government entity while being

adverse to another depends upon "whether the two government entities involved must be regarded as the same client" or whether one representation may be "materially limited" by the other, in which case the conflict might be curable with consent. The ABA also explained that determining if governmental entities are the same client is a "matter

of common sense and sensibility" including such factors as: entities' understandings

and expectations; any understanding between the entities and the lawyers; whether the

government entities have "independent legal authority with respect to the matter for

which the lawyer has been retained"; the entities' stake in the substantive issues or

shared concerns about the outcome. In discussing adversity, the ABA explained that

1 ABA LEO 405 (4/19/97) (Determining whether a lawyer may represent one government entity while being adverse to another depends upon "whether the two government entities involved must be regarded as the same client" or whether one representation may be "materially limited" by the other, in which case the conflict might be curable with consent. Determining if governmental entities are the same client is a "matter of common sense and sensibility" including such factors as: entities' understandings and expectations; any understanding between the entities and the lawyers; whether the government entities have "independent legal authority with respect to the matter for which the lawyer has been retained"; and the entities' stake in the substantive issues or shared concerns about the outcome. Determining if one representation would be "materially limited" by another representation depends on whether the matter would affect the "financial well-being or programmatic purposes" of either client. In some situations, a lawyer's representation of a government entity "on an important issue of public policy so identifies her with an official public position" that the lawyer could not oppose the government, even on an entirely unrelated matter. (internal quotations and citations omitted)).

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determining if one representation would be "materially limited" by another representation depends on whether the matter would affect the "financial well-being or programmatic purposes" of either client. In some situations, a lawyer's representation of a government entity "on an important issue of public policy so identifies her with an official public position" that the lawyer could not oppose the government, even on an entirely unrelated matter.

The Restatement (Third) of Law Governing Lawyers § 97 cmt. c (2000) acknowledges that a government lawyer ultimately represents the public, but notes that such a definition is "not helpful." The Restatement proposes as the "preferable approach" an arrangement regarding "the respective agencies as the clients" and the lawyers representing those agencies "as subject to the direction of those officers authorized to act in the matter involved in the representation." The Restatement concludes that "[i]f a question arises concerning which of several possible governmental entities a government lawyer represents, the identity of the lawyer's governmental client depends on the circumstances."

One Illinois LEO took exactly the same approach.

• Illinois LEO 07-01 (7/2007) ("Because state government is not one entity composed of all departments under the jurisdiction of the Governor for purposes of resolving conflict of interest questions, a lawyer may represent one state government agency while representing a private party adverse to another state government agency."; "But, we caution this does not mean that each state governmental agency is necessarily a separate entity from every other state governmental agency. On a case-by-case basis additional information must be considered, such as 'whether or not each government entity has independent legal authority to act on the matter in question, and whether representation of one government entity has any importance to the other government entity.' ISBA Op. No. 01-07, citing ABA Formal Opinion 97- 405 (the identity of a government client is partly a matter of 'common sense and sensibility' requiring an analytical approach looking at 'functional

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considerations as how the government client presented to the lawyer is legally defined and funded, and whether it has independent legal authority with respect to the matter for which the lawyer has been retained'). Additionally, one needs to consider 'whether or not decision makers within the government agencies with whom the lawyers would be working were one and the same.'").

A New York City LEO provided less guidance.

• New York City LEO 2004-03 (9/17/04) ("Government lawyers are subject to the rules that ordinarily govern the attorney-client relationship, including those governing conflicts of interest and entity representation. This opinion addresses various questions relating to government lawyers' conflicts of interest in civil litigation. The questions may ultimately be analyzed differently for government lawyers than for lawyers who represent private entity clients because of the legal framework within which government lawyers function. Questions such as who the lawyer represents, who has authority to make particular decisions in the representation, and whether the lawyer may represent multiple agencies with differing interests are largely determined by the applicable law. In dealing with government officers and employees, the government lawyer must comply with DR 5-109 and DR 5-105, as informed by applicable law. If the agency constituents are unrepresented, DR 5-109 requires the lawyer to clarify his or her role, as well as to report any discovered wrongdoing, as described in this opinion. When the government lawyer proposes to represent the constituent, a threshold question is whether the representation will be in the constituent's official or personal capacity. If the constituent would be represented personally, the lawyer must first determine whether the representation is permissible under the conflict of interest rule, DR 5-105, and the lawyer must comply with the rule's procedural requirements in light of the framework described in this opinion.").

A number of states have issued opinions dealing with the nature of multiple

public defenders or legal services offices. The nature of those government lawyers'

status can become important in a conflicts analysis if one of those offices takes a matter against a client represented by another office, or if one lawyer's individual disqualification might be imputed to all of the other offices.

In these opinions, the bars have held that the offices should not be considered

"one firm" for imputation purposes.

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• Ohio LEO 2010-5 (8/13/10) ("The assistant state public defenders in the state public defender's central appellate office located in the state's capital city and the assistant state public defenders in the state public defender's trial branch offices located in four different counties are not automatically considered lawyers associated in a firm for purposes of imputing conflicts of interest under Prof. Cond. Rule 1.10(a)."; "There is not a per se conflict of interest when an appellate assistant state public defender in the central appellate office conducts a merit review, asserts an appeal, or pursues a postconviction remedy asserting that another assistant state public defender in a branch office rendered ineffective assistance at trial."; "Under the organizational structure of the State Public Defender of Ohio, the central appellate office is separate from the trial branch offices located in four different counties. The four trial branch offices are described as 'essentially independent entities that have limited contact with the appellate attorneys' in the central office. The database of the central appellate office is separate from a trial branch office's database. The central office and the trial branch offices share Internet Technology support, the appellate attorneys do not have access to a trial branch office database. Each trial branch office has a branch office attorney director.").

• Virginia LEO 1776 (5/19/2003) (explaining that each jurisdiction's Public Defender and each jurisdiction's Capital Defense Unit should be considered separate legal entities for conflicts purposes, because each office acts independently, has a secure computer system and bears none of the indicia of offices in a multi-office law firm; noting that although a single state Commission oversees all of the offices, this fact should not result in a presumption that information in one office is shared with other offices; concluding that a Public Defender in an office may represent a capital defendant in a matter adverse to a client formerly represented by another lawyer in that office, "unless the defense of the current client would require the use of [protected] information obtained in the representation of the former client").

• North Carolina LEO 99-3 (4/23/99) (pointing to a North Carolina comment in explaining that "lawyers in different field offices of Legal Services of North Carolina may represent clients with materially adverse interests provided confidential information is not shared by the lawyers with the different field offices").

Courts generally take the same approach. For instance, in Brown & Williamson

Tobacco Corp. v. Pataki, 152 F. Supp. 2d 276 (S.D.N.Y. 2001), the court refused to disqualify the law firm of Covington & Burling from representing plaintiff Brown &

Williamson in a lawsuit against New York State, despite the law firm's long-term

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representation of New York state agencies on unrelated matters. The court explained that the identity of the law firm's client was not necessarily determined by the agency with which the law firm contracted, or the fact that the law firm's bills are directed to

"State of New York." The court eschewed a "formalistic" approach, and instead found that "the agencies responsible for the matters specified in [the law firm's] contract are its clients." Id. at 287.

Best Answer

The best answer to this hypothetical is (A) YES (PROBABLY).

B 6/14

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Partnerships

Hypothetical 4

You occasionally represent a law firm in your city on labor and employment matters (your work has not given you any information about the law firm's finances). The firm has five partners and ten associates. You have met all of the firm's lawyers at social functions, but deal primarily with one of the partners. One of your partners just told you that the wife of another partner at that firm wants to hire your firm to file a divorce action against her husband.

May your firm represent the wife in suing one of your law firm client's partners for divorce (without that partner's consent)?

(A) YES

(B) NO

(A) YES (PROBABLY)

Analysis

This hypothetical poses a question related to those dealing with corporations.

Here, the question is whether a lawyer representing a partnership also represents -- for conflicts of interest purposes -- the partners.

The ABA has analyzed the ethical rules governing lawyers representing partnerships. In ABA LEO 361 (7/12/91), the ABA concluded that "[t]here is no logical reason to distinguish partnerships from corporations or other legal entities in determining the client a lawyer represents." Thus, "[a]n attorney-client relationship does not automatically come into existence between a partnership lawyer and one or more of its partners."

[A] lawyer undertaking to represent a partnership with respect to a particular matter does not thereby enter into a lawyer-client relationship with each member of the partnership, so as to be barred, for example, . . . from

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representing another client on a matter adverse to one of the partners but unrelated to the partnership affairs.

Id.1

California courts have dealt with these issue.

• Lynn v. George, 223 Cal. Rptr. 3d 407, 417 (Cal. Ct. App. 2017) ("'[A]n attorney representing a partnership does not necessarily have an attorney- client relationship with an individual partner for purposes of applying the conflict of interest rules. Whether such a relationship exists turns on finding an agreement, express or implied, that the attorney also represents the partner.' (Responsible Citizens v. Superior Court, supra, 16 Cal. App. 4th at p. 1721.)").

An older California decision similarly held that "an attorney representing a

partnership does not necessarily have an attorney-client relationship with an individual

1 ABA LEO 361 (7/12/91) (explaining that a lawyer who represents a partnership does not automatically represent all of the individual partners, although the lawyer can establish a separate representation of the partners with disclosure and consent about the possible conflicts; also answering the following question: "Under what circumstances does information received by the partnership's lawyer from an individual partner constitute 'information relating to representation' of the partnership within the meaning of the Rule 1.6(a) so as to give the partnership a right to access to that information; and conversely, to what extent is each partner entitled to know whatever information has been conveyed on the partnership's behalf to the partnership's lawyer?"; concluding that "the Committee believes that information received by a lawyer in the course of representing the partnership is 'information relating to the representation' of the partnership, and normally may not be withheld from individual partners"; noting that this general rule would not apply "if the lawyer were representing the partnership in a dispute between the partnership and one or more individual partners"; noting that the issue of confidentiality "will often arise when the lawyer for a partnership also represents an individual partner, or a client adverse to the interests of an individual partner"; citing several cases in which a lawyer representing a partnership could not withhold information from any partner in an action by one of the partners to dissolve the partnership; holding that a lawyer representing a closely held corporation could not claim attorney-client privilege in withholding information about the communication between a lawyer and one of the officers (and co-owners) in an action brought in connection with the ouster of a second officer (and other co- owner); "The mandate of Rule 1.6(a), not to reveal confidences of the client, would not prevent the disclosure to other partners of information gained about the client (the partnership) from any individual partner(s). Thus, information thought to have been given in confidence by an individual partner to the attorney for a partnership may have to be disclosed to other partners, particularly if the interests of the individual partner and the partnership, or vis-a-vis the other partners, become antagonistic."; explaining that lawyers should define their role at the beginning of the representation; "If an attorney retained by a partnership explains at the outset of the representation, preferably in writing, his or her role as counsel to the organization and not to the individual partners, and if, when asked to represent an individual partner, the lawyer puts the question before the partnership or its governing body, explains the implications of the dual representation, and obtains the informed consent of both the partnership and the individual partners, the likelihood of perceived ethical impropriety on the part of the lawyer should be significantly reduced.").

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partner for purposes of applying the conflict of interest rules." Responsible Citizens v.

Superior Court, 20 Cal. Rptr. 2d 756, 758 (Cal. Ct. App. 1993). The court rejected the

"bright line rule that an attorney representing a partnership automatically represents each individual partner." Id. at 765.

• Eurycleia Partners, LP v. Seward & Kissel, LLP, 910 N.E.2d 976, 981 (N.Y. 2009) ("We therefore hold that S&K's representation of this limited partnership, without more, did not give rise to a fiduciary duty to the limited partners. Hence, plaintiffs' breach of fiduciary duty claim against S&K was properly dismissed.").

Other courts have taken the same approach.

• Kline Hotel Partners v. AIRCOA Equity Interests, Inc., 708 F. Supp. 1193 (D. Colo. 1989) (holding that a general partnership's lawyer did not have an attorney-client relationship with the partnership's 50% general partner).

As in other areas, limited liability companies have characteristics of both partnerships and corporations. Thus unique organizational structure triggers client- identification issues.

• Zachary Zaggar, NASCAR Driver Wins Bid To DQ Firm From Royalty Dispute, Law360, May 30, 2017 ("A Michigan federal judge on Tuesday granted a bid by NASCAR driver Kurt Busch to disqualify Frasco Caponigro Wineman & Scheible PLLC from representing his former sports agency, which is suing him for $1.4 million in back royalty payments."; "Busch had argued that Frasco Caponigro cannot represent his former agency, Sports Management Network Inc., because the firm had also represented him in the contracts at issue in a joint representation agreement in November 2005, under which the law firm and SMN President John P. Caponigro, who is also a managing partner at the firm, agreed to negotiate with third parties on his behalf."; "The firm argued earlier this month that it has done no legal work related to Busch since helping to execute his contract with SMN in 2005, and that the agency was always their client, not Busch, who Frasco Caponigro said has retained other legal counsel at all times since.").

• Rahmani v. Venture Capital Props. LLC, No. 650655/2015, 2016 NY Slip Op 31976(U), at 2, 2-3 (N.Y. Sup. Ct. Oct. 17, 2016) (disqualifying a lawyer from representing a plaintiff in an arbitration adverse to an LLC and two of the LLC's members, because the lawyer was representing the LLC in other

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matters; "In this case, Mr. Castro seeks to represent plaintiffs in the JAMS arbitration against defendant VCP while simultaneously representing VCP in three litigations in this court. When an attorney represents a limited liability company, he is deemed as a matter of law to represent each of its members (see Flores v. Williard j. Price Assocs, LLC, 20 AD 3d 343, 344, 799 N.Y.S.2d 43 [1st Dept 2005]; see also Steven's Distribs., Inc., 2010 NY Slip Op 31839[U], 2010 NY Misc LEXIS 336 at *16). Accordingly, by virtue of Castro's representation of VCP, Castro also represents the individual defendants Ebi Khalili and Josh Ramani because they are members of VCP. Thus, by representing plaintiffs in the arbitration against defendants, he is effectively 'suing his client,' in violation of Rule 1.7." (emphasis added)).

• Sprengel v. Zbylut, No. B256761, 2015 Cal. App. LEXIS 971 (Cal. Ct. App. Oct. 29, 2015) (adding a footnote to a previous opinion; "'Defendants contend that, in this particular case, we may reject Sprengel's claim of an implied attorney-client relationship under the first prong of the section 425.16 test because (1) the undisputed evidence shows they 'were hired only to represent the LLC [Purposeful Press], not Sprengel and (2) under 'settled,' 'black letter law,' an attorney for an LLC owes no professional dues to the LLC's individual members. Even if we were to assume that defendants' evidence established they were properly retained to represent the LLC only (a fact Sprengel disputes), defendants have cited no authority holding that an attorney for an LLC has no obligations to the LLC's individual members. Instead, defendants rely solely on cases holding that an attorney for a corporation generally does not represent the corporation's officers or shareholders in their individual capacities. . . . Our courts have applied a different rule in the context of partnerships, explaining that a five-part factual inquiry is used to 'determine whether in a particular case the partnership attorney has established an attorney-client relationship with the individual partners.'" (citation omitted)).

Best Answer

The best answer to this hypothetical is (A) YES (PROBABLY).

B 6/14

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Associations

Hypothetical 5

You have been asked to represent an association of companies based in your state's capital. This is a plum assignment, and you think it might give you a real marketing opportunity -- because you will have the chance to "schmooze" many potential clients at regular meetings of the association. However, one of your partners worries that there might be a downside risk to representing the association, because it might prevent your firm from being adverse to association members.

If your law firm represents the association, may you take matters adverse to individual members of the association (without their consent)?

(A) YES

(B) NO

(A) YES (PROBABLY)

Analysis

This hypothetical also involves the difficult question of determining the client's identity.

Most authorities hold that a lawyer who represents an association does not automatically have an attorney-client relationship with each member of the association.

This means that a lawyer representing an association generally may take matters adverse to association members, unless the lawyer has received confidential information from that member which the lawyer could use against the member's interest.

In 1992, the ABA issued an opinion explaining that a trade association's lawyer

"generally" does not represent any association members, but might be precluded from

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adversity to one of the members if a lawyer acquires confidential information from that

member as part of the trade association representation.1

The Restatement takes essentially the same approach.

Lawyer represents Association, a trade association in which Corporation C is a member, in supporting legislation to protect Association's industry against foreign imports. Lawyer does not represent any individual members of Association, including Corporation C, but at the request of Association and Lawyer, Corporation C has given Lawyer confidential information about Corporation C's cost of production. Plaintiff has asked Lawyer to sue Corporation C for unfair competition based on Corporation C's alleged pricing below the cost of production. Although Corporation C is not Lawyer's client, unless both Plaintiff and Corporation C consent to the representation under the limitations and conditions provided in § 122, Lawyer may not represent Plaintiff against Corporation C in the matter because of the serious risk of material adverse use of Corporation C's confidential information against Corporation C.

Restatement (Third) of Law Governing Lawyers § 121 cmt. d, illus. 10 (2000).

State legal ethics opinions also generally hold that a lawyer representing a trade

association does not automatically represent its members, but might face a conflict if the

lawyer acquires confidential information from a member. See, e.g., District of Columbia

1 ABA LEO 365 (7/6/92) (a lawyer representing a trade association must first determine whether an attorney-client relationship exists with the individual members of the association; Rule 1.13 generally indicates that the lawyer represents the entity, and a comment to that rule "notes that the duties it defines apply equally to unincorporated associations. Thus the approach taken in this opinion is not affected by whether or not the trade association is recognized as a separate jural entity."; explaining that although generally a trade association's lawyer does not represent individual members, "circumstances in a particular instance" might support a finding that such a relationship exists (for instance, the smaller the association, the more likely the relationship); noting that even if the lawyer does not represent the individual association members, the members might be considered "derivative" clients or "vicarious" clients for conflicts purposes; "For example, and most typically, if the member has disclosed relevant confidential information to the association's counsel (a factor that may indicate the existence of an actual lawyer-client relationship, but which in the Committee's view is also one of the particular facts that can require disqualification in the 'derivative' client analysis), disqualification is required.").

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LEO 305 (1/16/01) ("a lawyer who represents a trade association does not, without

more, represent the members of the association").

Case law tends to apply the same standard.

• E2Interactive, Inc. v. Blackhawk Network, Inc., No. 09-cv-629-s/c, 2010 U.S. Dist. LEXIS 48333, at *19, *24 (W.D. Wis. May 16, 2010) (refusing to disqualify Alston & Bird from handling a matter adverse to a Safeway subsidiary while simultaneously representing Safeway itself in another matter; "Defendant's final argument is that it became a client of Alston's in connection with Alston's representation of the Consumer Choice Prepaid Card Coalition. A lawyer who represents a trade association does not have a conflict of interest with an individual member of the association if the lawyer 'neither has undertaken representation of the member nor otherwise stands in a lawyer-client relationship with that member.' ABA Comm. on Ethics and Prof'l Responsibility, Formal Op. 92-365 (1992)." (emphasis added); noting that Alston had stopped representing the Coalition at some point, which made the Coalition a past client; "[B]oth this lawsuit and the lobby efforts related in one way or another to 'gift cards,' which is defendant's business. But there must be something more to the phrase 'substantially related' than merely involving the client's business or its products in some general sense; otherwise, no lawyer could ever be adverse to a corporation that was a former client." (emphasis added)).

• J.G. Ries & Sons, Inc. v. Spectraserv, Inc., 894 A.2d 681 (N.J. Super. Ct. App. Div. 2006) (a law firm representing a trade association may represent one member against another member in a matter unrelated to the trade association).

• United States v. Am. Soc'y of Composers, Authors & Publishers, 129 F. Supp. 2d 327, 337 (S.D.N.Y. 2001) (allowing an association's inside and outside counsel to handle litigation brought by an association member).

Interestingly, a New Jersey LEO explained that a lawyer representing a trade

association could not effectively disclaim an attorney-client relationship if the lawyer

obtains confidential information from a member. New Jersey LEO 712 (2/11/08)

(explaining that communication to a nonprofit trade association's hotline staffed by

attorneys would create an attorney-client relationship; "nonprofit trade association may not disclaim the formation of an attorney-client relationship, as it is likely such a

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relationship will arise in the course of the provision of services by the attorneys staffing the legal hotline. In addition, the association should file its legal services plan with the

Supreme Court and demonstrate that its proposed services comply with RPC

7.3(e)(4).").

This standard can present logistical problems for law firms which represent trade associations. Those law firms presumably would have to run conflicts checks before answering any specific questions from any trade association members -- because the law firms might be representing other clients adverse to those members in unrelated matters. Fortunately, the members probably would be considered the law firm's "client" only during the telephone call or other communication -- after which the member would become a former client. If courts and bars take that approach, the law firm could immediately become adverse to that association member in an unrelated matter, as long as that matter did not involve any of the information that the law firm received from the association member during the communication.

Best Answer

The best answer to this hypothetical is (A) YES (PROBABLY).

B 6/14

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Insured/Insurance Company

Hypothetical 6

You had trouble finding a job after graduating from law school, but you finally landed an associate position at a law firm that primarily handles insurance defense work. During your first interview with an insured whom you have been asked to represent by the insurance company, the insured asks you a question that you cannot immediately answer: "Are you just representing me, or are you also representing the insurance company?"

When an insurance company hires a lawyer to represent one of its insureds, does that lawyer also represent the insurance company?

(A) YES

(B) NO

MAYBE

Analysis

Introduction

Properly identifying the "client" in an insurance context situation has enormous implications, but differs from state to state.

In 2013, the Southern District of Indiana noted that

[j]urisdictions are divided on whether the attorney retained by an insurance company to defend the insured have [sic] an attorney-client relationship with both the insured and the insurance company."

Woodruff v. Am. Family Mut. Ins. Co., 291 F.R.D. 239, 243 (S.D. Ind. 2013. In the same year, the Eastern District of Pennsylvania explained that Pennsylvania had not decided the issue -- and then concluded with an unhelpful uncertainty.

• Camico Mut. Ins. Co. v. Heffler, Radetich & Saitta, LLP, Civ. A. No. 11-4753, 2013 U.S. Dist. LEXIS 10832, at *6-7, *9-10, *11, *12, *15 (E.D. Pa. Jan. 28, 2013) (holding that the lawyer hired by an insurance company to represent

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the insured does not automatically have a joint representation between the two of them; "The Pennsylvania Supreme Court has not addressed whether an insurance carrier is always a co-client with its insured when the carrier funds the defense of the insured. Indeed, this question continues to be the subject of debate among scholars and courts." (emphasis added); "The Restatement (Third) of the Law Governing Lawyers . . . rejects an absolute rule. The Restatement discusses representations in the insurer-insured context, noting that, '[t]he insurer is not, simply by the fact that it designates the lawyer, a client of the lawyer. Whether a client-lawyer relationship also exists between the lawyer and the insurer is determined under § 14.' Restatement (Third) of the Law Governing Lawyers § 134 cmt. f."; "Teleglobe [Teleglobe Communications Corp, 493 F.3d 345 (3d Cir. 2007)] provides additional support for the position that insured and insurer are not considered co-clients whenever the insurer pays for the defense of the insured."; "The Court concludes, . . . that where an insurer funds the defense of its insured, the insurer may be, but is not always, a co-client of the insured." (emphasis added); "[N]o evidence was offered in support of this alleged participation by CAMICO in a joint representation.").

Some states' rules wisely alert lawyers of the need for clarity. A unique Florida

Rule warns lawyers to explain to everyone involved in such a situation the exact identity

of the lawyer's "client."

Upon undertaking the representation of an insured client at the expense of the insurer, a lawyer has a duty to ascertain whether the lawyer will be representing both the insurer and the insured as clients, or only the insured, and to inform both the insured and the insurer regarding the scope of the representation. All other Rules Regulating The Florida Bar related to conflicts of interest apply to the representation as they would in any other situation.

Florida Ethics Rule 4-1.7(e). An accompanying comment provides a further

explanation.1

1 Florida Rule 4-1.7 cmt. ("The unique tripartite relationship of insured, insurer, and lawyer can lead to ambiguity as to whom a lawyer represents. In a particular case, the lawyer may represent only the insured, with the insurer having the status of a non-client third party payor of the lawyer's fees. Alternatively, the lawyer may represent both as dual clients, in the absence of a disqualifying conflict of interest, upon compliance with applicable rules. Establishing clarity as to the role of the lawyer at the inception of the representation avoids misunderstanding that may ethically compromise the lawyer. This is a general duty of every lawyer undertaking representation of a client, which is made specific in this context due to the desire to minimize confusion and inconsistent expectations that may arise.").

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States continue to debate the issue.

• Mark Dubois, Are We Ready To Join States Recognzing Dual Clients?, Law360, July 26, 2018 ("An issue on which I get a call now and then is whether or when we're [Connecticut] going to recognize that an insurance defense lawyer has two clients – the insured and the insurer. My answer is always the same – even though there's clear law that says the only client is the insured, it's a minority approach; many states recognize the two-client approach as both permissible and practical."; "There's a rich body of case law, law reviews and scholarly articles on the problem one judge described as the 'iron triangle.' Others refer to it as the 'eternal triangle' and, more esoterically, the 'tripartite insurance defense relationship.' According to two experts in the field, William T. Barker and Charles Silver, who published an excellent treatise on the ethical duties of insurance defense lawyers, 39 or more states have embraced the notion."; "The idea, as explained by Barker in a series of emails he and I exchanged on the issue a few years back, is that the most common scenario is that the insured and the carrier have congruent interests; any potential conflict can simply be waived, or in the more modern parlance, consented to."; "Of course, there are a few speed bumps that might make the ability of the lawyer to serve two masters questionable. If there's a policy defense or coverage dispute, it's hard to imagine a lawyer representing both parties, but I suppose they could duke that issue out in a different forum with different lawyers.").

To make matters more complicated, lawyers might not find controlling guidance in their states' ethics opinions.

In 2013, an Oregon federal court bluntly reminded everyone that courts, rather than bars, define attorney-client relationships.

• Evraz Inc. N.A. v. Riddell Williams P.S., Civ. No. 3:08-cv-00447-AC, 2013 U.S. Dist. LEXIS 165430, at *13, *14, *20, *21 (D. Or. Nov. 21, 2013) ("The court finds that an attorney-client relationship did not exist between Continental [defendant insurance company] and Stoel Rives [law firm plaintiff wants to hire]. Resolution of this issue begins with Continental's assumption that legal ethics opinions are controlling of this court's determination. They are not. Several Oregon State Bar ethics opinions suggest that in some circumstances, an insurer retaining counsel pursuant to a duty to defend an insured gives rise to a tri-partite attorney-client relationship between the attorney and both the insurer and insured." (emphasis added); Continental overlooks well-established Oregon law that legal ethics opinions are advisory only." (emphasis added); "The Oregon Supreme Court determines the standards that govern attorneys and its standard controls this court's

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determination here."; "[T]he record lacks objective evidence of an attorney- client relationship between Stoel Rives and Continental."; "Continental has pointed to no act or representation by Stoel Rives that would give Continental a reasonable basis to think Stoel Rives also became its lawyer in the Portland Harbor Superfund litigation after Continental accepted Evraz's tender of defense.").

Bars naturally defer to courts' conclusion about such relationships.

• District of Columbia LEO 290 (4/20/99) ("The Committee concludes that the law firm ethically may submit an insured's detailed bills that contain protected information to the insurer only after the lawyer has informed the insured about the nature and potential consequences of both the requested disclosure and non-disclosure and the insured has consented to the release of the information. Disclosure of such information to an independent auditing agency also may occur only with consent of the insured after disclosure. Consent to disclose confidences and secrets to the Insurer may not provide a basis to infer consent to disclose the same information to another entity who performs work for the insurer."; "It has been suggested that the existence of legal privilege provides a basis to infer consent to disclosure or implied authorization. Communications among the insurer, insured and lawyer may be privileged, at least in part, because the lawyer is representing both parties, because there is a joint defense agreement or because a legal doctrine governing the 'tripartite' relationship of insurer-insured-attorney applies. This is a matter of substantive law beyond the scope of the Committee's opinion. In any event, the mere existence of a possible privilege among insurer, insured and counsel does not in and of itself provide a basis to infer client consent to disclosure of confidences or secrets. Except as allowed by Rule 1.6, a lawyer may not release information relating to the representation of a client to anyone, including a co-client, unless the first client consents after disclosure or an exception is met. To the extent it is relevant, the existence of a joint privilege may bear on the consequences of disclosure of which the client must be apprised before consenting." (emphases added); "The inquirer has also asked whether it would be ethically permissible to provide the same detailed billing information and work product directly to the outside auditing agency. If the auditor is an independent entity from the insurance company, disclosure to the auditor is only permissible if the provisions of Rule 1.6 have been met. Even if disclosure to the insurance company has been consented to by the client, that consent should not be assumed to include consent to disclosure to a third party auditor. The Rule 1.6 considerations we have described with respect to insurance company disclosure should be separately addressed when disclosure to an auditor is requested."; "The inquirer also asked whether the Rules of Professional Conduct apply if the lawyer provides the protected information to the insurer, who then sends it to the outside auditor. The Rules of Professional Conduct do not apply to an insurer and

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insurance companies are therefore not bound by this opinion. Prior to disclosure of protected information to the insurer, however, the lawyer should instruct the insurer not to release the protected information and should designate all such information clearly. If there is reason to believe that the insurer will not follow this instruction, the lawyer should so advise the client, prior to disclosure, explaining any additional risks that would result from disclosure by the insurer to a third party." (emphases added)).

Thus, lawyers may have to look for guidance in several places.

Identifying the "client" in the insurance context obviously has confidentiality implications.

• New York County LEO 751 (9/20/17) (“[W]e conclude that selected panel counsel who, in the course of representing an insured, learns of confidential information that may be detrimental to the insured if disclosed, must maintain the confidentiality of that information and not disclose it to the insurance carrier. The lawyer cannot advise the client regarding disclosing the misrepresentation absent written consent by the client after full disclosure of the conflict, and even then only if the lawyer is not disabled from rendering competent representation by the lawyer's conflicting financial interest. If the client does not disclose the information to the insurance carrier, the lawyer may withdraw from the representation if the client persists in a course of action involving the lawyer's services that the lawyer believes is criminal or fraudulent or has used the lawyer's services to perpetrate a crime or fraud, and should seek permission for withdrawal from the tribunal handling the underlying professional negligence claim if required by the rules of that tribunal.” (emphasis added)).

The client identification issue also affects malpractice liability issues (among other implications).

• Stewart Title Guar. Co. v. Sterling Sav. Bank, 311 P.3d 1, 4 & n.2 (Wash. 2013) (holding that a title insurance company could not pursue a malpractice case against a lawyer it hired to defend its insured; "The alignment of interests is insufficient to find a duty running from Witherspoon to Stewart Title for purposes of a malpractice claim."; "'We recognize that other jurisdictions have come to a different conclusion. See Paradigm Ins. Co. v. Langerman Law Offices, P.A., 200 Ariz. 146, 155, 24 P.3d 593 (Ariz. 2001) (holding that a 'lawyer's services are ordinarily intended to benefit both insurer and insured when their interests coincide'); Atlanta Int'l Ins. Co. v. Bell, 438 Mich. 512, 523, 475 N.W.2d 294 (1991) (permitting insurer to bring malpractice action where 'the interests of the insurer and the insured

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generally merge'); Unigard Ins. Group v. O'Flaherty & Belgum, 38 Cal. App. 4th 1229, 1236-37, 45 Cal. Rptr. 2d 565 (1995) (permitting malpractice action 'where there is otherwise no actual or apparent conflict of interest between the insurer and the insured' (emphasis omitted)); see also Restatement (Third) of the Law Governing Lawyers § 51 cmt. g (2000) (stating, regarding a test with an intended beneficiary factor similar to Washington's, that 'a lawyer designated by an insurer to defend an insured owes a duty of care to the insurer with respect to matters as to which the interests of the insurer and insured are not in conflict.')."; "Indeed, a contrary conclusion would conflict with Trask [Trask v. Butler, 872 P.2d 1080 (1994)]. It could also make any third party payor an intended beneficiary of a legal services contract to whom a duty of care runs, in violation of RPC 5.4(c).").

ABA Model Rules

Unfortunately, the ABA Model Rules do not provide guidance on this issue.

Restatement

The Restatement acknowledges that the law governing the relationship between the insured and the insurer is beyond the scope of its rules. However, the Restatement urges attorney-client privilege protection for pertinent communications, and provides guidance to lawyers receiving conflicting instructions from an insurance company and an insured.

A lawyer might be designated by an insurer to represent the insured under a liability-insurance policy in which the insurer undertakes to indemnify the insured and to provide a defense. The law governing the relationship between the insured and the insurer is, as stated in Comment a, beyond the scope of the Restatement. Certain practices of designated insurance-defense counsel have become customary and, in any event, involve primarily standardized protection afforded by a regulated entity in recurring situations. Thus a particular practice permissible for counsel representing an insured may not be permissible under this Section for a lawyer in noninsurance arrangements with significantly different characteristics.

It is clear in an insurance situation that a lawyer designated to defend the insured has a client-lawyer

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relationship with the insured. The insurer is not, simply by the fact that it designates the lawyer, a client of the lawyer. Whether a client-lawyer relationship also exists between the lawyer and the insurer is determined under § 14. Whether or not such a relationship exists, communications between the lawyer and representatives of the insurer concerning such matters as progress reports, case evaluations, and settlement should be regarded as privileged and otherwise immune from discovery by the claimant or another party to the proceeding. Similarly, communications between counsel retained by an insurer to coordinate the efforts of multiple counsel for insureds in multiple suits and such coordinating counsel are subject to the privilege. Because and to the extent that the insurer is directly concerned in the matter financially, the insurer should be accorded standing to assert a claim for appropriate relief from the lawyer for financial loss proximately caused by professional negligence or other wrongful act of the lawyer. . . .

The lawyer's acceptance of direction from the insurer is considered in Subsection (2) and Comment d hereto. With respect to client consent (see Comment b hereto) in insurance representations, when there appears to be no substantial risk that a claim against a client-insured will not be fully covered by an insurance policy pursuant to which the lawyer is appointed and is to be paid, consent in the form of the acquiescence of the client-insured to an informative letter to the client-insured at the outset of the representation should be all that is required. The lawyer should either withdraw or consult with the client-insured . . . when a substantial risk that the client-insured will not be fully covered becomes apparent.

Restatement (Third) of Law Governing Lawyers § 134 cmt. f (2000).

An illustration provides an example of a scenario in which a lawyer may follow the insurance company's direction, because it would not prejudice the insured.

Insurer, a liability-insurance company, has issued a policy to Policyholder under which Insurer is to provide a defense and otherwise insure Policyholder against claims covered under the insurance policy. A suit filed against Policyholder alleges that Policyholder is liable for a covered act and for an amount within the policy's monetary limits. Pursuant to the policy's terms, Insurer designates Lawyer to defend

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Policyholder. Lawyer believes that doubling the number of depositions taken, at a cost of $5,000, would somewhat increase Policyholder's chances of prevailing and Lawyer so informs Insurer and Policyholder. If the insurance contract confers authority on Insurer to make such decisions about expense of defense, and Lawyer reasonably believes that the additional depositions can be forgone without violating the duty of competent representation owed by Lawyer to Policyholder (see § 52), Lawyer may comply with Insurer's direction that taking depositions would not be worth the cost.

Restatement (Third) of Law Governing Lawyers § 134 cmt. f, illus. 5 (2000). The

Restatement also provides guidance to lawyers facing the more awkward situation, in which the insurance company's instruction might harm the insured.

Material divergence of interest might exist between a liability insurer and an insured, for example, when a claim substantially in excess of policy limits is asserted against an insured. If the lawyer knows or should be aware of such an excess claim, the lawyer may not follow directions of the insurer if doing so would put the insured at significantly increased risk of liability in excess of the policy coverage. Such occasions for conflict may exist at the outset of the representation or may be created by events that occur thereafter. The lawyer must address a conflict whenever presented. To the extent that such a conflict is subject to client consent . . . , the lawyer may proceed after obtaining client consent under the limitations and conditions stated in § 122.

When there is a question whether a claim against the insured is within the coverage of the policy, a lawyer designated to defend the insured may not reveal adverse confidential client information of the insured to the insurer concerning that question . . . without explicit informed consent of the insured . . . . That follows whether or not the lawyer also represents the insurer as co-client and whether or not the insurer has asserted a "reservation of rights" with respect to its defense of the insured . . . .

With respect to events or information that create a conflict of interest between insured and insurer, the lawyer must proceed in the best interests of the insured, consistent with the lawyer's duty not to assist client fraud . . . and, if

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applicable, consistent with the lawyer's duties to the insurer as co-client . . . . If the designated lawyer finds it impossible so to proceed, the lawyer must withdraw from representation of both clients as provided in § 32 . . . . The designated lawyer may be precluded by duties to the insurer from providing advice and other legal services to the insured concerning such matters as coverage under the policy, claims against other persons insured by the same insurer, and the advisability of asserting other claims against the insurer. In such instances, the lawyer must inform the insured in an adequate and timely manner of the limitation on the scope of the lawyer's services and the importance of obtaining assistance of other counsel with respect to such matters. Liability of the insurer with respect to such matters is regulated under statutory and common-law rules such as those governing liability for bad-faith refusal to defend or settle. Those rules are beyond the scope of this Restatement.

Restatement (Third) of Law Governing Lawyers § 134 cmt. f (2000).

States Recognizing an Attorney-Client Relationship only with the Insured

In some states, it is very clear that a lawyer hired by an insurance company to represent its insured represents only the insured.

• Texas LEO 669 (3/2018) (“When a lawyer represents an insured at the request of an insurance company, the attorney and the insured have an attorney-client relationship, and the Texas Disciplinary Rules of Professional Conduct govern the attorney's conduct.”; “Lawyer may not disclose Defendant's confidential information, including Defendant's lack of cooperation, to Company, regardless of whether such disclosure may lead to Company's withdrawing coverage. Moreover, of course, Lawyer may not use Defendant's lack of cooperation to Defendant's disadvantage.”; “Furthermore, Lawyer may not reveal Defendant's failure to communicate in order to explain to Company the reason for Lawyer's withdrawal from the representation. With respect to the reasons for withdrawal, a statement to the court and to Company 'that professional considerations require termination of the representation ordinarily should be accepted as sufficient.'“; “Under the Texas Disciplinary Rules of Professional Conduct, if an insured fails to communicate with a lawyer who is retained to defend the insured, then the lawyer may withdraw from the representation. In that event, the lawyer must protect the insured's confidential information and may not, in the absence of the insured's consent, disclose to the insurance company the reason for the withdrawal. In

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connection with moving to withdraw from the suit, the lawyer should avoid disclosing, either to the court or to the insurance company, the specific reason for the withdrawal. The lawyer instead should provide only a general explanation that professional considerations require withdrawal, although there are circumstances in which a court may require that additional information be provided to the court.” (emphases added)).

• Texas LEO 668 (11/2017) (“Under the Texas Disciplinary Rules of Professional Conduct, when an insurance company staff attorney undertakes the representation of a client who is insured by the staff attorney’s employer, his duty is to that client and not to any other person insured by his employer. Like all lawyers, a staff attorney must zealously represent his client. Also, like all lawyers, a staff attorney has a duty of loyalty to his client and a duty to exercise independent judgment on behalf of his client, regardless of the fact that his employer is the client's insurance company. If, during the representation, a staff attorney's representation of the insured client becomes adversely limited by his own interests or the interests of his employer, the insurance company, the staff attorney must not continue the representation unless he is able to obtain consent from each affected or potentially affected client in accordance with the requirements of the Texas Disciplinary Rules of Professional Conduct. If, during the representation, a staff attorney cannot exercise independent professional judgment on behalf of his client, he must withdraw from the representation.” (emphasis added)).

• Evraz Inc. N.A. v. Riddell Williams P.S., Civ. No. 3:08-cv-00447-AC, 2013 U.S. Dist. LEXIS 165430, *4, *13-14, *22, *23 (D. Or. Nov. 21, 2013) (finding that a law firm which represented an insured did not also represent its insurance company; "The court finds that no attorney-client relationship existed between Continental [defendant insurance company] and Stoel Rives [law firm plaintiff wants to hire] under controlling Oregon Supreme Court precedent and, alternatively, under the Oregon State Bar ethics opinion upon which Continental relies. The court also finds no representational conflict would be created by allowing Stoel Rives to represent Evraz in its coverage litigation against Continental."; "The court finds that an attorney-client relationship did not exist between Continental and Stoel Rives. Resolution of this issue begins with Continental's assumption that legal ethics opinions are controlling of this court's determination. They are not. Several Oregon State Bar ethics opinions suggest that in some circumstances, an insurer retaining counsel pursuant to a duty to defend an insured gives rise to a tri-partite attorney-client relationship between the attorney and both the insurer and insured. . . . Continental overlooks well-established Oregon law that legal ethics are advisory only." (emphasis added); "Continental overlooks the absence of two crucial facts: it did not hire and did not pay Stoel Rives."; "Evraz, not Continental, hired Stoel Rives to represent it in the Portland Harbor Superfund litigation. Evraz hired Stoel Rives five years before

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Continental accepted Evraz's tender of defense under a reservation of rights in November 2004."; "Evraz, not Continental, paid Stoel Rives. Continental disputes this by stating it 'funded' Evraz's defense pursuant to the insurance contract, but undisputed is that Continental never paid Stoel Rives, a critical distinction here because of Continental's rigid reliance on the context-specific default rule. Here, Continental reimbursed Evraz who then paid Stoel Rives, which Evraz had directly retained and paid to represent it long before Continental accepted Evraz's tender of defense. The payment relationship between Evraz and Stoel Rives never changed after Continental appeared. Continental provides neither analysis nor authority to support its assertion that it should be found to have paid Stoel Rives as the default rule contemplates and, thus, trigger its application to the specific facts present here." (emphasis added)).

• Larson v. One Beacon Ins. Co., Civ. A. No. 12-cv-03150-MSK-KLM, 2013 U.S. Dist. LEXIS 81181, at *15, *16 (D. Colo. June 10, 2013) ("In Colorado insurance cases, 'an attorney retained by the insurance carrier owes a duty to the insured only; there is no attorney-client relationship between an insurance carrier and the attorney it hires to represent the insured.'" (citation omitted) (emphasis added); "[T]he communications between Ms. Tester [Insured] and Mr. Thomas [Lawyer hired by the insurance carrier to represent the insured] are generally protected, but not when those communications are between Ms. Tester and/or Mr. Thomas on the one hand and Defendant and/or Defendant's legal counsel on the other." (emphasis added)).

• EMC Ins. Co. v. Mid-Continent Cas. Co., Civ. A. No. 10-cv-03005-LTB-KLM, 2012 U.S. Dist. LEXIS 142977, at *7 (D. Colo. Oct. 3, 2012) ("In Colorado insurance cases, 'an attorney retained by the insurance carrier owes a duty to the insured only; there is no attorney-client relationship between an insurance carrier and the attorney it hires to represent the insured.'").

• Virginia LEO 1863 (9/26/12) (explaining that Virginia case law and ethics opinions "suggest" that a lawyer hired by an insurance company to represent its insured represents only the insured; noting that on the other hand, absent a conflict of interest, the same lawyer may represent both the insurance company and the insured; concluding that given this situation, a plaintiff's lawyer may communicate ex parte with the insurance adjuster or other insurance company executive without the insured's defense lawyer's consent -- "unless the plaintiff's lawyer is aware that the defendant/insured's lawyer also represents the insurer [overruling LEOs 550, 687, 1169 and 1524 to the extent that it implies otherwise]." [overruled in LEO 1863 (9/26/12), which indicated that plaintiff's lawyer may speak ex parte with an insurance adjuster or other insurance company executive unless the plaintiff's lawyer is aware that the insured's lawyer also represents the insurance company].

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• Alaska LEO 2008-2 (9/11/08) ("The subrogated insurer's right to receive proceeds from the insured plaintiff's recovery in a lawsuit does not make the insurer a 'client' of the lawyer under the ethics rules.").

• Commercial Union Ins. Co. v. Marco Int'l Corp., 75 F. Supp. 2d 108, 109, 111 (S.D.N.Y. 1999) (holding that a lawyer representing an insurance company in litigation with an insured over coverage was not disqualified from handling that representation while simultaneously pursuing a subrogation case in which the law firm technically represents the insured; "The firm Nicoletti, Hornig & Sweeney ('NH&S') represents Commercial, with which it has a long relationship, and therefore Marco, in that suit, which remains pending. Although representing Marco in name, NH&S reports to Commercial. Marco pays none of NH&S's fees and has no role in directing or controlling the litigation." (footnotes omitted) (emphasis added); "Certainly Marco is neither a litigant nor a client of NH&S in the subrogation case in the usual sense. Under the terms of the policy, Marco was obligated to assign and subrogate to Commercial its right to prosecute and recover any claim against third parties responsible for the loss on which Commercial made payment. The subrogation case, although brought in Marco's name, is Commercial's alone. Marco has no material pecuniary or other interest in the subrogation suit. Its role in the suit is limited to providing documents and testimony as required by the cooperation clause of the policy. Moreover, Marco did not retain NH&S to prosecute the suit, it pays none of NH&S's fees, and it has no control over the prosecution, settlement or dismissal of the matter. In consequence, NH&S represents Marco in the subrogation case only as a matter of form, and it cannot be said to stand in a traditional attorney-client relationship with Marco. As a matter of substance, NH&S's client in the subrogation case is Commercial." (footnote omitted) (emphases added)).

• Virginia LEO 1723 (11/23/98) (a lawyer hired by an insurance carrier to represent an insured "must represent the insured with undivided loyalty," and may not (1) agree to an insurance carrier's restrictions on the lawyer's representation of the insured "absent full disclosure and consent of the client at the outset of the representation and absent a determination that the client's rights will not be materially impaired by the restrictions" such as limitations on discovery and the use of experts and other third party vendors, and requirements for "pre-approval for time spent on research, travel and the taking and summarizing of depositions"; (2) submit detailed information to a firm selected by the insurance carrier to audit billing statements, without the insured client's consent after "full and adequate disclosure"; or (3) recommend that the client consent to such disclosure to the auditor if it would prejudice the client).

• Norman v. Ins. Co. of N. Am., 239 S.E.2d 902, 907 (Va. 1978) ("[A]n insurer's attorney, employed to represent an insured, is bound by the same high

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standards which govern all attorneys, and owes the insured the same duty as if he were privately retained by the insured.").

States Recognizing a Joint Representation of the Insurance Company and the Insured

In other states, the lawyer selected by the insurance company to represent the insured is characterized as representing both the insured and the insurance company.

This is sometimes called a "tripartite" relationship.

For instance, several North Carolina ethics opinions explicitly indicate that such a lawyer has a joint representation.

• North Carolina LEO 2003-12 (10/21/04) ("Prior ethics opinions have firmly established that a lawyer defending an insured at the request of an insurer represents both clients. Rule 1.7, cmt. [29] to [33]; . . . . The lawyer's primary duty of loyalty, however, is to the insured.").

• North Carolina LEO 99-14 (1/21/00) (holding that "[a] lawyer who is hired by an insurance carrier to defend one of its insureds (or third-party beneficiary) represents both the insurer and the insured (or third-party beneficiary). See RPC 91, RPC 103, and RPC 172. However, when the insured has contractually surrendered control of the defense and of the authority to settle the lawsuit to the insurance carrier, the defense lawyer is generally obligated to accept the instructions of the insurance carrier in these matters. RPC 91."; also addressing the following question: "May Attorney D disclose to Insurance Company information relative to Defendant's desire to offer no defense including statements, actions, and conduct that indicate that Defendant would like the Inlaws to be successful in the lawsuit?"; answering as follows: "No. Disclosure of this information to Insurance Company may be harmful to the interests of Defendant because Insurance Company may use this information to deny coverage to Defendant. Rule 1.6(a). Nevertheless, Attorney D may inform Insurance Company that Defendant has instructed him to take a substantially different approach on the defense than that requested by Insurance Company. He may also inform Insurance Company that he cannot represent Insurance Company in a coverage dispute, and he may advise Insurance Company to obtain independent counsel on this matter.").

• North Carolina LEO CPR 255 (1/18/80) (explaining that a lawyer hired by an insurance company to represent an insured has an attorney-client relationship with both the company and the insured -- meaning that "[i]f conflicts of interest develop between the insured and insurer, such conflicts should be frankly discussed with both, and each should be advised he/it has the right to seek

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advice from other, independent counsel"; also holding that a lawyer representing an insurance company can simultaneously represent a plaintiff seeking recovery from another insured).

The North Carolina Supreme Court has addressed such a relationship's implications.

• Friday Invs.v. Bally Total Fitness of Mid-Atlantic, Inc., 805 S.E.2d 664, 667- 68, 668, 668-69) (N.C. 2017) (finding that an indemnity agreement between the seller and purchaser of a fitness club created what the court called a “tripartite” relationship, which essentially amounted to a joint representation; “Historically, an attorney-client relationship arises between an attorney and a single client the attorney represents. . . . The Court, however, has also recognized a multiparty attorney-client relationship in which an attorney represents two or more clients. . . . 'The rationale for recognizing this tripartite attorney-client relationship is that individuals with a common interest in the litigation should be able to freely communicate with their attorney, and with each other, to more effectively defend or prosecute their claims.'“ (citation omitted); “Like the common interest found between the insurer and the insured, an indemnification agreement creates a common interest between the indemnitor and the indemnitee in that the indemnitor contractually shares in the indemnitee's legal well-being because the agreement subjects the indemnitor to the 'damages assessed and loss resulting from an adverse judgment.' . . . As a result, a tripartite attorney- client relationship arises because the interests of both the indemnitor and indemnitee in prevailing against the plaintiff's claim are contractually aligned, notwithstanding that usually only the indemnitee has been sued.”; “In all significant ways, the question of the formation of an attorney-client relationship here is indistinguishable from that resolved by our decision in Raymond [Raymond v. N.C. Police Benevolent Ass'n, 365 N.C. 94, 721 S.E.2d 923(2011)]. Blast contractually agreed to indemnify and defend defendants against any losses incurred relating to their real property lease. After this litigation commenced, defendants notified Blast of the litigation, and Blast engaged counsel to defend the case under the indemnification agreement. Like the common interest found in the insurance context, Blast's interest in defendants' legal well-being as indemnitees creates the common interest in this litigation: The indemnification provision subjects Blast to any damages that result from an adverse judgment against defendants. Accordingly, a tripartite attorney-client relationship exists between defendants, Blast, and their defense counsel.”).

Other states take the same approach.

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• Med. Assurance Co. v. Weinberger, 295 F.R.D. 176, 184-85 (N.D. Ind. 2013) ("PCF readily admits that tripartite attorney-relationship between Medical Assurance, Hough [lawyer], and the Weinberger defendants extends the attorney-client privilege among the three parties and that waiver of the privilege by one does not constitute a waiver by the other party.").

• Bank of Am. N.A. v. Superior Court, 151 Cal, Rptr. 3d 526, 531 (Cal. Ct. App. 2013) (recognizing a tripartite relationship between an insurance carrier, an insured, and the lawyer hired by the former to represent the latter; "When an insurer retains counsel to defend its insured, a tripartite attorney-client relationship arises among the insurer, insured, and counsel. As a consequence, confidential communications between either the insurer or the insured and counsel are protected by the attorney-client privilege, and both the insurer and insured are holders of the privilege. In addition, counsel's work product does not lose its protection when it is transmitted to the insurer." (emphasis added); "In this case, we hold the same tripartite attorney-client relationship arises when a title insurer retains counsel to prosecute an action on behalf of the insured pursuant to the title policy." (emphasis added)).

• Vicor Corp. v. Vigilant Ins. Co., 674 F.3d 1, 19, 20 (1st Cir. 2012) (analyzing a situation in which a plaintiff sued an insurance company to recover money it paid in settling an underlying case; holding that even though the insurance company had paid for the defense of the underlying case under reservation of rights, it was entitled to some but not all communications between insured and the insured's litigation counsel, because under Massachusetts law that lawyer was deemed to represent both the insurance company and the insured; "Vicor argues that the defense attorneys in the Ericsson litigation did not represent both Vicor and the insurers. Massachusetts law, however, considers an attorney retained by an insurer to represent the insured as the attorney for both."; "Here, the record reflects multiple letters, reports and other communications between underlying defense counsel and the insurers regarding such matters as liability assessment, strategic litigation planning and calculations of potential damage outcomes. All were marked as 'privileged and confidential,' and the parties agree they were privileged as to third-parties, such as Ericsson."; "[W]e conclude that the district court erred, and Vicor cannot rely on the attorney-client privilege to shield all communications between it and underlying defense counsel."; "The fact that both the insured and insurer are deemed to be clients does not mean that all communications are excepted from the applicable privileges, or that the insurers are necessarily entitled to the entire defense file, as they claim." (emphasis added)).

Mut. Auto Ins. Co. v. Fed. Ins. Co., 86 Cal. Rptr. 2d 20, 22, 24, 26, 27, 29 (Cal. Ct. App. 1999) (holding that a lawyer who was hired an insurance company to represent its insured has an attorney-client relationship

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with the insurance company, and can be disqualified from representing other clients adverse to the insurance company even on unrelated matters; explaining the issue: "The primary issue presented by this appeal is whether, for purposes of disqualification, the attorney representing an insured is also representing the insurance company. If the insurance company is a client, this case poses a secondary question regarding the applicable disqualification standard. The issue becomes whether the insurance company is a 'former' or a 'concurrent' client when the attorney files a complaint naming the insurance company as a defendant and then settles the insured's case."; explaining that the law firm McCormick was retained in 1996 to represent State Farm on coverage issues adverse to Federal, and also retained by Federal Insurance to represent its insured; noting that McCormick represented State Farm in February 4, 1998, declared to a judgment action against Federal, but continued to represent Federal's insured on the unrelated matter until that case settled on May 28, 1998; noting that under California law "it has been held that an insurance company is a client with respect to its ability to assert the attorney-client privilege. . . . Between the attorney and the insurer who retained the attorney and paid for the defense, there exists a separate attorney-client relationship endowed with confidentiality."; "In the absence of a conflict of interest between the insurer and the insured that would preclude an attorney from representing both, the attorney has a dual attorney-client relationship with insurer and insured."; "Here, McCormick was representing Federal in the Pinion matter [action in which McCormick represented Federal's insured] when McCormick filed the underlying complaint against Federal on behalf of State Farm. Approximately three months later, the Pinion case settled. Thus, there existed a period of time during which McCormick was simultaneously representing clients with adverse interests. Further, before the settlement, Federal's counsel alerted McCormick to this alleged conflict. Nevertheless, the trial court analyzed the relationship as if it were a successive representation and applied the substantial relationship test on the ground that the Pinion case had concluded by the time the disqualification motion was heard."; "However, the fact that the Pinion case happened to settle before the disqualification motion was heard should not absolve McCormick from its ethical obligations toward Federal. McCormick knowingly undertook adverse concurrent representation when it filed the underlying complaint. Even if McCormick had initially been unaware of this adverse representation, Federal's counsel notified McCormick of the conflict on at least two occasions before the Pinion case settled. Nevertheless, McCormick took no action in response. Thus, the 'exceptions' noted above do not apply."; "Therefore, although this fortuitous settlement acted to sever McCormick's relationship with its preexisting client, it did not remove the taint of a three-month concurrent representation."; rejecting State Farm's argument that Federal consented to the adverse representation because it hired McCormick when it knew that McCormick was representing State Farm in its coverage dispute with Federal; finding that McCormick was responsible for

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the conflict; "[T]he burden was on McCormick to avoid creating a conflict. McCormick should not have accepted the cases referred by Federal when it was aware that it might be filing a lawsuit against Federal on behalf of another client. Consequently, there is no basis for finding that Federal impliedly consented to the adverse representation.").

States Recognizing Some Other Arrangement

Some states seem to follow yet another approach.

In 2012, the Eastern District of Kentucky described an insurance company as the

"primary client" of a lawyer retained to represent its insured.

• Lee v. Med. Protective Co., 858 F. Supp. 2d 803, 805 (E.D. Ky. 2012) (analyzing privilege issues in a third party bad faith context; "Plaintiffs' first argument is that the file is not privileged because there is no attorney-client relationship between the insurance company and the attorney retained by it to defend the insureds. This argument is totally without merit. First, Asbury v. Beerbower, 589 S.W.2d 216 (Ky. 1979), clearly holds that statements, given by an insured to an adjuster before the company has hired an attorney, but to be given to the attorney who will ultimately be retained, partake of the insurer's attorney-client privilege. The implication is that the insurance company is the primary client." (emphasis added)).

In the same year, the Louisiana Supreme Court indicated that an insured's lawyer's duty to the insured was limited to the insured's insurance policy's terms.

• In re Zuber, 101 So. 3d 29, 33, 34-35, 35 n.8 (La. 2012) (explaining that a lawyer retained by an insurance company to defend an insured must advise the insured of developments in the proceedings even if the insurance company had the exclusive right to settle; "In this case, we are called upon to decide the scope of a lawyer's duties to a client, where the client's rights are contractually limited by the terms of the client's insurance policy."; "Consistent with this guidance, we interpret Rule 1.2 as requiring a lawyer who represents an insurer and insured in a case involving a 'consent to settle' clause to advise the insured as soon as practicable (generally at the inception of representation) of the limited nature of the representation the attorney will provide to the insured. Once the lawyer has made appropriate disclosure to the insured of the limited nature of the representation being offered under the insurance contract and the insured indicates consent by accepting the defense, the lawyer may then proceed with the representation at the direction of the insurer in accordance with the terms of the insurance contract, including settling the claim within the limits of the policy at the insurer's sole direction. However, the lawyer should make efforts to keep the insured

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reasonably apprised of developments in the case." (footnote omitted) (emphasis added); "If the attorney knows that the insured objects to a settlement, the attorney may not settle the claim at the direction of the insurer without first giving the insured the opportunity to reject the defense offered by the insurer and to assume responsibility for his own defense at his own expense. However, in the instant case, neither Mr. Zuber nor Ms. Nobile knew that Dr. Teague objected to a settlement, as he candidly admits he 'never did write or call anyone about that.'"; ultimately concluding that the uncertainty about the law meant that the lawyer had not clearly violated the ethics rules (emphasis added)).

Implications for a Law Firm Representing Insureds

For law firms, there are possible micro and macro implications.

Recognizing a joint representation when a lawyer represents an insured might prevent the lawyer from representing the insured against the insurance company in that matter. Not surprisingly, states disqualify lawyers attempting to do so.

• Yellow Cab Corp. v. Eighth Judicial Dist. Court, 152 P.3d 737, 739, 740-741, 741, 742 (Nev. 2007) (noting that under Nevada law a lawyer retained by an insurance company that represented insured has an attorney-client relationship with both the insurance company and the insured; disqualifying the lawyer from representing the insured in an action against the insurance company in the same case in which the lawyer had earlier represented both them; "In concluding that writ relief is not warranted in this case, we expressly adopt the majority rule that counsel retained by an insurer to represent its insured represents both the insurer and the insured in the absence of a conflict. Thus, an attorney-client relationship existed between ICW and the associate who had previously defended Yellow Cab, who was now employed by Vannah's new firm."; "A threshold issue that must be addressed is whether ICW waived any conflict by waiting over two years into the litigation before filing its motion to disqualify counsel. Waiver requires the intentional relinquishment of known right. . . . If intent is to be inferred from conduct, the conduct must clearly indicate the party's intention. . . . Thus, the waiver of a right may be inferred when a party engages in conduct so inconsistent with an intent to enforce the right as to induce a reasonable belief that the right has been relinquished. . . . However, delay alone is insufficient to establish a waiver. . . . Here, ICW identified VCVG's potential conflict almost immediately and asked Vannah to withdraw. He refused. When ICW and Yellow Cab decided to try mediation, ICW postponed any motion for disqualification, while stating that it reserved its right to file such a motion if mediation failed. When mediation failed, ICW promptly filed its motion. Thus, ICW's conduct does not demonstrate, as required for waiver, a clear intent to relinquish its right to

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challenge Vannah and his firm."; "With respect to the relationship between an insurer and counsel the insurer retains to defend its insured, the majority rule is that counsel represents both the insurer and the insured in the absence of a conflict. . . . This rule requires that the primary client remains the insured, but counsel in this situation has duties to the insurer as well. . . . Courts adopting this rule note that, while the insured is the primary client, counsel generally learns confidential information from both the insured and the insurer and thus owes both of them a duty to maintain this confidentiality; . . . and, since counsel generally offers legal advice to both the insured and the insurer, counsel owes a duty of care to both. . . . Finally, as most states, including Nevada, have a rule that permits joint representation when no actual conflict is present, . . . courts that have adopted a dual-representation principle in insurance defense cases reason that joint representation is permissible as long as any conflict remains speculative."; "While we have not directly addressed this issue in our prior opinions, we have implicitly recognized that an attorney-client relationship exists between a medical malpractice insurer and the lawyer it retains to defend its insured doctor. . . . Also, in considering whether the insurer can assert an attorney-client or work product privilege for documents prepared during the representation of an insured, we have presumed that an attorney-client relationship exists between the insurer and counsel it retained for its insured. . . . We now expressly adopt the majority rule concerning the relationship between an insurer and counsel retained by the insurer to defend its insured.").

Although this approach makes sense, a number of scenarios might present the awkward situation in which a lawyer diligently representing the insured might be required to take positions adverse to the insurance company -- which is considered another "client" in those states.

In one interesting 2008 legal ethics opinion, the Philadelphia Bar dealt with a situation in which a lawyer selected by an insurance company was defending a driver after an accident in which the driver's family members were killed or injured. The driver directed the lawyer selected to defend her "not to vigorously defend against my family's

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injuries." The Philadelphia Bar indicated that the lawyer "is bound to honor the client's

decision in this regard."2

On a micro level, law firms could face a very difficult situation if their retention as

an insured's lawyer prevented the law firm from adversity to the insurance company on

unrelated matters (in other words, if the insurance company becomes a law firm client

for all purposes, rather than just for analyzing the law firm's freedom to become adverse

to the insurance company in the same matter in which the firm represents the insured).

The cases in which courts disqualify law firms from adversity to insurance

companies they represent tend to focus on the law firm's acquisition of confidential

information from the insurance company.

• Allendale Mut. Ins. Co. v. Excess Ins. Co., C.A. No. 94-0614B, 1995 U.S. Dist. LEXIS 19882, at *16 (D.R.I. June 1, 1995) (assessing the situation in which a law firm had represented many insurance companies and insureds on unrelated matters; disqualifying the law firm from representing plaintiffs in actions against the insurance companies because the law firm had represented the company in several matters; "Prudential's insureds were being represented by K&T at the time this instant complaint was filed. While K&T states it represented only the insureds and not Prudential directly, it has been held that where there is no dispute between an insurer and insured, 'as a fundamental proposition a defense lawyer is counsel to both the insurer and the insured. He owes to each a duty to preserve the confidences and secrets imparted to him during the course of representation.'" (citation omitted)).

2 Philadelphia LEO 2008-11 (2008) ("It is the Committee's understanding that the inquirer is defense counsel for an individual who was the driver of a car involved in a one-vehicle accident in which her husband and one son were injured and another son killed. The inquirer has been retained in this role by the client's liability insurer."; "The inquirer's client's husband has instituted suit against her. The client is said to have $25,000/50,000 (presumably per claim and in the aggregate, respectively) in liability insurance limits. The client is the sole defendant and it is the inquirer's belief that there are no liability defenses."; "The client has expressly instructed the inquirer not to 'vigorously defend against my family's injuries' and not to hire expert witnesses. At the same time, the inquirer is concerned because 'the insurance policy obligates me to defend the insured.'"; "It is the Committee's further understanding that the client has discussed with the inquirer and understands the potential adverse consequences of such a 'limited defense' position and has directed the inquirer to continue to proceed as directed. Under the circumstances, therefore, it is the Committee's opinion that the inquirer is bound to honor the client's decision in this regard.").

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• Sacca & Sons, Inc. v. E. Coast Excavators, Inc., [no number in original], 1992 Mass. App. Div. 6, 7 (Mass. Dist. Ct. Jan. 24, 1992) (declining to disqualify a lawyer from adversity to an insurance carrier even though the lawyer had represented the insurance carrier, because the carrier was a "secondary" client, and the lawyer did not acquire any confidential information from it);

• Gray v. Commercial Union Ins. Co., 468 A.2d 721, 724-26 (N.J. Super. Ct. App. Div. 1983) (assessing the ability of a lawyer who under New Jersey law represented both the insurance company and the insured to take positions adverse to the insurance company in unrelated cases; ultimately holding that the lawyer could not be adverse to the insurance company because he had acquired pertinent information while representing the insured; "[I]t is evident that neither Colqujoun nor any members of the firm in which he is a member can properly represent Gray in this action against Commercial Union. First, there is no dispute that Colquhoun maintained an attorney-client relationship with Commercial Union. Colquhoun's argument, that he did not have a 'true' attorney-client relationship with Commercial Union because his professional duty ran to the latter's insureds and not the insurer itself[,] cannot withstand scrutiny. Concededly, it can be said that '[t]hese interrelationships among a liability insurer, its insured, and the attorney chosen by the insurer to represent the insured, are sui generis. The canons and disciplinary rules do not address themselves frankly and explicitly to this special set of relationships, and there is awkwardness in attempts to apply the canons and rules.' . . . Nonetheless, this ambiguity exists only as to instances of a conflict of interest between the insurer and the insured, which raise the question of the lawyer's primary allegiance. There is no dispute that a fundamental proposition a defense lawyer is counsel to both the insurer and the insured. . . . It may not be seriously disputed that as a result of his 20 years as one of Commercial Union's lawyers, Colquhoun has obtained confidential information and possesses knowledge of certain internal policies of Commercial Union that he will be able to use against it in the Gray litigation. According to Gray's complaint, (1) Commercial Union's management opposed certain changes he made in the operation of the New Jersey claims department and retaliated by forcing him out of his job and (2) Commercial Union determined to drive out all pre-merger personnel 'by making policies of personnel reduction and unwarranted increases in casualty reserves.' Both of these charges rest upon factual allegations regarding the operation of Commercial Union's New Jersey claims department. It is exactly these facts to which Colquhoun was privy during his 20 years of defending claims for Commercial Union. As one of Commercial Union's New Jersey counsel, it is difficult to conceive that Colquhoun would not have become familiar with the structure, operation and policies of its claims department. . . . Although this general information may not be specifically relevant to the merits of the Gray- Commercial Union dispute, it constitutes secrets or confidences of the former client that could be used against it to its substantial disadvantage.").

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The confidential information issue normally does not even arise when a lawyer represents one client adverse to another of the lawyer's clients (even on an unrelated matter) -- so these few decisions tend to support the position that the insurance company does not become a law firm client for all purposes.

On a macro level, a small number of cases have found that an insurance company which hires a lawyer to represent its insured should be considered the lawyer's "client" not only in that matter (the "tripartite relationship"), but in all matters -- thus presumably precluding the lawyer from simultaneously representing other clients adverse to the insurance company, even in unrelated matters.

• Nationwide Mut. Fire Ins. Co. v. Bourlon, 617 S.E.2d 40, 46, 47, 48 (N.C. Ct. App. 2005) ("In construing the effect of the tripartite relationship between an attorney, an insurer, and an insured, several courts across the country have held that the 'common interest' or 'joint client' doctrine applies. Under this doctrine, communications between the insured and the retained attorney are not privileged to the extent that they relate to the defense for which the insurer has retained the attorney."; "In light of the foregoing, we are persuaded that the common interest or joint client doctrine applies to the context of insurance litigation in North Carolina. Therefore, where, as here, an insurance company retains counsel for the benefit of its insureds, those communications related to the representation and directed to the retained attorney by the insured are not privileged as between the insurer and the insured. Nevertheless, we note that application of the common interest or joint client doctrine does not lead to the conclusion that all of the communications between defendant and Patterson were unprivileged. Instead, the attorney-client privilege still attaches to those communications unrelated to the defense of the underlying action, as well as those communications regarding issues adverse between the insurer and the insured. Specifically, 'communications that relate to an issue of coverage . . . are not discoverable . . . because the interests of the insurer and its insured with respect to the issue of coverage are always adverse.'" (citation omitted); addressing the obligation of the lawyer (retained by the insurance company to represent the insured) to provide his file to the insurance carrier; "[W]e are not persuaded that the trial court erred by concluding that Patterson was prohibited from providing the file to plaintiff in a wholesale manner. As discussed above, some communications contained in the file may have been privileged, including those communications unrelated to the underlying action

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or defendant's counterclaims, those communications regarding coverage issues made prior to defendant's counterclaims, and those communications unrelated to the conduct forming the basis of defendant's counterclaims. Therefore, we agree that Patterson's file should not have been provided to plaintiff in a wholesale manner. Instead, the file should have been submitted to the trial court for in camera review aimed at determining which documents in the file were privileged. Accordingly, we conclude that the trial court did not err by ruling that Patterson breached his attorney-client relationship with defendant when he provided plaintiff with the entire file from the underlying action."), aff'd 625 S.E.2d 779 (N.C. 2006).

• State Farm Mut. Auto. Ins. Co. v. Fed. Ins. Co., 86 Cal. Rptr. 2d 20 (Cal. Ct. App. 1999) (assessing a situation in which a law firm hired by defendant Federal Insurance to represent one of its insureds simultaneously sued Federal Insurance on behalf of State Farm in a completely unrelated matter; noting that the case in which the law firm represented Federal Insurance's insured later settled, but for three months the law firm was simultaneously representing one of Federal Insurance's insureds while representing State Farm in a lawsuit against Federal Insurance; explaining the California position that a law firm representing an insured has a "triangular" arrangement in which the law firm also is deemed to represent the insurance company; disqualifying the law firm from its representation of State Farm adverse to Federal Insurance).

These cases make little sense. Considering the insurance company a lawyer's

"client" is somewhat of a fiction in any event. Considering the company a client generally seems inconsistent with normal attorney-client relationship rules, and could hamper a lawyer's ability to represent another regular client who happens to have insurance coverage that will pay for the lawyer's defense of those clients. A lawyer might be reluctant to represent that regular client in an insured case, if such a representation would also make the insurance company a lawyer's "client" for all purposes.

The insurance company-insured relationship can implicate other ethics principles as well. Even if a law firm does not represent both the insured and the insurance

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company, the insured's duty of cooperation can affect the lawyer's normal duty of confidentiality owed to the insured.

Best Answer

The best answer to this hypothetical is MAYBE. B 6/14

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Estates

Hypothetical 7

As part of your local bar's mentoring initiative, you answer ethics questions from recent law school graduates. You just received a call from a young lawyer who wants to start taking trust and estate matters. Although she poses her question in the abstract, the answer could affect her day-to-day actions.

If an executor hires the young lawyer to perform work, who is the lawyer's client?

(A) The estate

(B) The executor (but only in his or her fiduciary capacity)

(C) The executor in all his or her capacities

(B) THE EXECUTOR (BUT ONLY IN HIS OR HER FIDUCIARY CAPACITY)

Analysis

This issue has generated considerable debate among trust and estate lawyers.

An estate does not have a separate existence as an entity (such as a corporation), so it

is difficult to conceive of the "estate" as a client. On the other hand, it seems odd to

consider the client to be an individual -- because the individual's interests could differ from that of the corpus at issue (for instance, if the executor seeks inappropriately large fees from the estate) or from other beneficiaries.

The ABA Model Rules acknowledge differences in states' approach.

For example, conflict questions may arise in estate planning and estate administration. A lawyer may be called upon to prepare wills for several family members, such as husband and wife, and, depending upon the circumstances, a conflict of interest may be present. In estate administration the identity of the client may be unclear under the law of a particular jurisdiction. Under one view, the client is the fiduciary; under another view the client is the estate or trust, including its beneficiaries. In order to comply with conflict of

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interest rules, the lawyer should make clear the lawyer's relationship to the parties involved.

ABA Model Rule 1.7 cmt. [27] (emphasis added).

Not surprisingly, the American College of Trust & Estate Counsel ("ACTEC")

Commentaries also deal with this issue. ACTEC also recognizes the debate, and the majority view that a lawyer generally represents the fiduciary (executor or trustee) rather than an estate, trust, etc.

A very small minority of cases and ethics opinions have adopted the so-called entity approach under which the fiduciary estate is characterized as the lawyer's client. However, most cases and ethics opinions treat the fiduciary as the lawyer's client and the beneficiaries as persons to whom the lawyer may owe some duties.

American College of Trust & Estate Counsel, Commentaries on the Model Rules of

Professional Conduct, Commentary on MRPC 1.13, at 128 (4th ed. 2006), http://www.actec.org/Documents/misc/ACTEC_Commentaries_4th_02_14_06.pdf.

As the ACTEC Commentaries recognize, most states view the fiduciary as the real "client."

[W]hen a fiduciary hires an attorney for guidance in administering a trust, the fiduciary alone, in his or her capacity as fiduciary, is the attorney's client. . . . The trust is not the client, because 'a trust is not a person but rather "a fiduciary relationship with respect to property."'. . . Neither is the beneficiary the client, because fiduciaries and beneficiaries are separate persons with distinct legal interests.

Borissoff v. Taylor & Faust, 93 P.3d 337, 340 (Cal. 2004).

As explained by the ACTEC Commentaries, the case law on this issue is mixed.

Some cases reject the "entity" approach.

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• Gonzales v. United States, No. C-08-03189 SBA (EDL), 2010 U.S. Dist. LEXIS 52950, at *3 (N.D. Cal. May 4, 2010) ("Plaintiff has cited no authority to support the argument that an estate is like a corporation for purposes of the attorney-client privilege. Second, even if an estate is like a corporation for purposes of the attorney-client privilege, there has been no showing that Mr. Smith [decedent's tax preparer, accountant and fact witness] was an employee of the corporation who was empowered to speak for the corporation under the test from Upjohn [Upjohn Co. v. United States, 449 U.S. 383 (1981)].").

Other courts and bar seem to take an "entity" approach.

• Faulkner v. Klein, No. B265893, 2017 Cal. App. Unpub. LEXIS 5406, at *8-9, *9, *10, *12-3, *14 (Cal. Ct. App. Aug. 7, 2017) (not citable) (holding that a trustee had to turn over documents to a successor trustee; "When a trustee seeks advice on trust administration, the client is the office of the trustee, not the individual trustee, (Moeller v. Superior Court (1997) 16 Cal. 4th 1124, 1131, 1135, 69 Cal. Rptr. 2d 317, 947 P.2d 279 (Moeller) ['administrative' communications].) And when there is a change in trustees, the power to assert the attorney-client privilege passes with the office from the predecessor to the successor trustee. (Id. at p. 1133.) In such circumstances, the predecessor may not withhold from the successor privileged communications between the office of the trust and its counsel. This rule enables the successor trustee to fulfill their duty to inquire into the predecessor's administration of the trust and remedy any breaches. (Id. at pp. 1137-1138.) The current trustee is thus the present holder of the privilege with respect to any confidential communications between the former trustees and Miller, Williams, or Street that arose from their representation of the office of the trust. (Id. at 1131.)"; "On the other hand, a trustee may individually seek legal advice in their personal capacity to protect against personal liability. (Moeller, supra, 16 Cal. 4th at pp. 1134-1135 ['defense' communications].) If the trustee takes affirmative steps to segregate that personal representation from trust administration, they may withhold those communications arising from personal representation from the successor trustee. (Fiduciary Trust Internat. of California v. Klein (2017) 9 Cal. App. 5th 1184, 1199, 216 Cal. Rptr. 3d 61 (Fiduciary Trust).) For example, a trustee who seeks legal advice from personal counsel for their own protection 'may be able to avoid disclosing the advice to a successor trustee by hiring a separate lawyer and paying for the advice out of [his] personal funds.' (Moeller, at p. 1134.)." (alteration in original); "There is no evidence in the record to support a finding that Klein and Reynolds sought legal advice in their personal capacity from Miller, Williams, or Street or that they took any steps to separate their requests for advice related to personal representation from that related to administrative representation prior to their removal."; "Here, too, Klein and Reynolds show counsel performed some work that

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related to removal, accounting objections, and matters for which they may be subject to surcharges, but they offer no evidence they retained Miller, Williams, or Street in their personal capacities for the purpose of protecting against personal liability. No lawyer declares they represented Klein or Reynolds in their personal capacities, and there are no retainer agreements or billing records to support such an inference. Williams and Street each declare they worked for the office of the trust and did not represent Klein or Reynolds in their personal capacities. Miller declares he never worked for the trustees directly in any capacity. His collection letter proves he had contact with the former trustees because he refers to a 'conversation' with Klein. But it does not support an inference that the firm represented Klein and Reynolds in their personal capacities. It is adversarial, and he wrote it in five months after the firm's representation ended."; "Retrospective segregation is insufficient to preserve the former trustees' right to withhold attorney-client communications from their successor. . . . There is no evidence of any other relationship imposing a duty of confidentiality owed to Klein and Reynolds personally. Klein and Reynolds did not meet their burden of demonstrating standing to seek disqualification of Miller Barondess."), opinion modified, 2017 Cal. Unpub. LEXIS 6109 (Cal. Ct. App. Sept. 5, 2017).

• Sabin v. Ackerman, 846 N.W.2d 835, 840, 841, 843 (Iowa 2014) (holding that a lawyer representing an estate's lawyer does not have a duty to protect executor's personal interest; "The proper administration of the estate requires that the intent of the testator governing the administration of the estate and the distribution of property not be frustrated by a breach of a duty of the attorney. . . . Schreiner v. Scoville, 410 N.W.2d 679, 682 (Iowa 1987) (indicating liability arises when testator's intent is frustrated and beneficiary's interest is lost, diminished, or unrealized). Thus, we have permitted a beneficiary to maintain a legal malpractice action against the designated attorney of an estate when the attorney breaches a duty owed to the beneficiary in handling the estate and causes harm. . . . This third-party beneficiary doctrine identifies an exception to the general rule that an attorney-client relationship is required to pursue an attorney malpractice action. . . ."; "In this case, Diean [Executor] did not pursue her malpractice claim against Ackerman [lawyer hired by Diean to handle estate administration] under either of these two theories of liability. Her claim does not rest on Ackerman's duty to her in her capacity as the executor to properly perform all services required to administer the estate of his duty to her as a third-party beneficiary of the estate. As revealed in her answers to interrogatories and resistance to summary judgment, Diean's lawsuit centers on a claim that the attorney-client relationship imposed a duty on Ackerman to inform her of all considerations relevant to her personal interests in connection with the exercise of the option by James [heir and plaintiff's brother] during the administration of the estate and the execution of the documents that transferred the farm to James. She also argues that the

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presence of her personal interests in the exercise of the option imposed a duty on Ackerman to advise her of the need to consult with independent counsel to protect her personal interests by challenging the option if the services he rendered as the estate attorney did not include such a duty."; "[W]e decline to adopt the position advocated by Diean to impose a duty on an estate attorney by virtue of the attorney-fiduciary relationship to represent the personal interests of the personal representative. We conclude the creation of a relationship between an attorney and an executor or administrator does not impose a duty to protect the personal interests of the executor or administrator.").

• North Carolina LEO 99-4 (10/22/99) ("RPC 137 states that 'in accepting employment in regarding to an estate, an attorney undertakes to represent the personal representative in his or her official capacity and the estate as an entity.' After undertaking to represent all of the co-executors, a lawyer may not take action to have one co-executor removed." (emphasis added)).

Given the importance of defining the "client" for lawyers trying to assess their responsibilities, this uncertainty is surprising.

Perhaps even more remarkably, the issue was unclear even in Florida until 2018.

• Carolina Bolado, Florida High Court Clarifies Privilege Question In Estates Cases, Law360, Jan. 29, 2018 (“The Florida Supreme Court on Thursday clarified that attorney-client privilege exists between a lawyer and the fiduciary of an estate, not the estate's beneficiary, clearing up confusion that trusts and estates attorneys say has plagued the practice for years.”; “At the request of The Florida Bar, the high court formally adopted into the rules of evidence a 2011 law passed by the Florida Legislature stating that the attorney-client privilege rests with the fiduciary of an estate and not its beneficiaries. The justices had declined to adopt the law in 2014 to the extent that it was 'procedural' rather than 'substantive,' leaving attorneys unsettled about whether, and to what extent, it applied.”).

Best Answer

The best answer to this hypothetical is (B) THE EXECUTOR (BUT ONLY IN HIS

OR HER FIDUCIARY CAPACITY).

B 6/14

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Bond Counsel

Hypothetical 8

After about ten years in the business world, you decided to become a lawyer. Although you were involved in many bond deals in your previous career, you never had to answer a question that one of your law professors just posed to you.

When you act as bond counsel, is the bond issuer your client?

(A) YES

(B) NO

MAYBE

Analysis

Remarkably, courts, bars, and academics have never settled on the identity of

bond counsel's "client."

A 2005 article in The Bond Lawyer raises the question, but does not come to any

conclusion. Instead, the article warns bond counsel that they should try to articulate in

some written memorialization to whom they will owe duties. William H. McBride, Who is

the Client of Underwriters' Counsel?, The Bond Lawyer (Journal of Nat'l Ass'n of Bond

Lawyers), June 1, 2005, at 33.

It does not seem appropriate to define the issuer as bond counsel's client. If anything, the issuer should be considered an adversary. Theoretically, the future purchasers of the bonds should be considered bond counsel's clients. However, that is not a very satisfying answer, because those folks are not even identified when bond

counsel provides legal services as part of the transaction.

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Best Answer

The best answer to this hypothetical is MAYBE.

B 6/14

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Identifying the Client Within a Corporate Entity

Hypothetical 9

As the General Counsel of your publicly traded client, you naturally find yourself dealing with complicated situations. You just received a call from one of your client's directors, who serves on the Audit Committee. She has asked you to hire an outside law firm to assist the Audit Committee in conducting an internal corporate investigation into possible accounting irregularities. A prominent local lawyer comes immediately to mind, and within five minutes you have him on the phone. Before you can explain the situation in any detail, he asks you a simple question.

Who will be the outside law firm's client in this representation --

(A) The board member who called you

(B) The Audit Committee

(C) The Board of Directors

(D) The corporation

(E) The corporation's shareholders

(D) THE CORPORATION (ACTING THROUGH THE BOARD OF DIRECTORS)

Analysis

As in so many other contexts involving ethics, the attorney-client privilege and other doctrines, the key to beginning the analysis involves properly defining the client.

There are many constituencies inside a corporation that could establish a separate attorney-client relationship with an outside or an in-house lawyer.

"Default" Position: Corporation as the Client

The "default" position is that a lawyer advising a corporation's constituent

represents the corporation as an institution.

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A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents.

ABA Model Rule 1.13(a).

In several cases, courts applied this "default" position in situations in which the

lawyers apparently did not clearly identify their client.

For instance, one court held that WilmerHale represented "the entire corporation,

and not just the Audit Committee" (meaning that the firm's communications with

corporate employees deserved privilege protection).1 An earlier New York state court

case held that a lawyer providing advice to a company's Special Litigation Committee

represented both the committee "and the corporation as a whole" -- which the court

equated as representing "the plaintiff shareholders."2

Representation of Corporate Constituents Rather than the Corporation

Although the "default" position normally defines the client as the corporation itself

rather than any of its constituents, courts sometimes find that lawyers have or could

have established an attorney-client relationship with one of the corporation's

constituents.

1 Lawrence E. Jaffee Pension Plan v. Household Int'l, Inc., 244 F.R.D. 412 (N.D. Ill. 2006).

2 Weiser v. Grace, 683 N.Y.S.2d 781, 786 (N.Y. Sup. Ct. 1998) (assessing plaintiff shareholders' efforts to obtain documents from the special litigation committee of defendant company; "The court recognizes that some of the documents sought may contain privileged matter which may be immune from discovery, notwithstanding their relevance to issues of good faith and the reasonableness of the investigation. Thus, an in camera review is the appropriate procedural vehicle to ensure that those privileges are not violated, while permitting plaintiffs to obtain the discovery necessary to challenge the SLC's [Special Litigation Committee] good faith. However, the court notes that the application of the attorney-client privilege is problematic. The SLC's counsel represents both the SLC and the corporation as a whole (e.g., the plaintiff shareholders). Under such circumstances, the attorney-client privilege would not bar discovery of all communications between counsel and the SLC."; noting that the Garner doctrine might entitle plaintiffs to review the documents, and ordering an in camera review to assist in that determination).

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A Delaware court held that a special board committee could have hired its own

lawyer to represent just a committee, and withheld privileged communications from

other members of the board.3

In 2008, the Northern District of California held that Howrey represented only the

Special Committee of a company's Board, and not the Board itself -- concluding that the

Special Committee and the Board did not even share a "common interest."

The court notes that not only is the Board not Howrey's client such that the attorney-client privilege does not attach, the Board also does not have a common interest with the Special Committee since it was the Special Committee's mandate to ascertain whether members of the Board . . . may have engaged in wrongdoing.

SEC v. Roberts, 254 F.R.D. 371, 378 n.4 (N.D. Cal. 2008).4

3 Moore Bus. Forms, Inc. v. Cordant Holdings Corp., Civ. A. Nos. 13911 & 14595, 1996 Del. Ch. LEXIS 56 (Del. Ch. June 4, 1996) (assessing a dispute between a corporation and a plaintiff shareholder who had sued the corporation over the right of the shareholder's designee to review information furnished to other board members; ultimately granting the shareholder's motion to compel discovery, because the shareholder was entitled to the information that its designated director was entitled to see; noting that the company could have included a different provision in the stockholder agreement or arranged for appointment of a special committee; "Under either scenario the special committee would have been free to retain separate legal counsel, and its communications with that counsel would have been properly protected from disclosure to Moore [shareholder] and its director designee. Neither approach was followed here.").

4 SEC v. Roberts, 254 F.R.D. 371, 378 n.4, 378 (N.D. Cal. 2008) (assessing privilege issues in connection with an internal corporate investigation of possible options backdating at McAfee, conducted by the Howrey law firm; concluding that the McAfee Board and the Special Committee did not share a common interest; "The court notes that not only is the Board not Howrey's client such that the attorney-client privilege does not attach, the Board also does not have a common interest with the Special Committee since it was the Special Committee's mandate to ascertain whether members of the Board . . . may have engaged in wrongdoing. In this respect, this court disagrees with the conclusion reached in In Re BCE West, L.P., No. M-8-85, 2000 U.S. Dist. LEXIS 12590, 2000 WL 1239117 (S.D.N.Y. Aug. 31, 2000)."; finding that Howrey's disclosure to the Board triggered a waiver; "Certain instances of waiver are straightforward. When Howrey 'detailed for the Board the various stock option issues, improprieties and erroneous option grant dates that were discovered in the investigation,' . . . it waived the work product privilege with respect to its conclusions regarding which option grant dates were improper or erroneous."; ultimately finding a broad scope of waiver, although applied on an interviewee-by-interviewee basis -- so that Howrey's disclosure of its opinions about the interview or the interviewee triggered a subject matter waiver covering materials that the law firm created during that interview).

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Defining the lawyer's "client" in this way can have dramatic effects. The Northern

District of California found that Howrey's communications with Board members who did not serve on the Special Committee did not even deserve privilege protection.

The notes with respect to communications between Howrey and the Board or members of the Board that are not members of the Special Committee are not protected by the attorney-client privilege since they are not with respect to communications between Howrey and its client, the Special Committee of the Board.

Id. at 383 (emphasis added). This was a remarkable finding, because in most situations a corporation's lawyer can rely on the Upjohn standard to protect the lawyer's communications with other constituents of the corporation (such as employees) even if the lawyer does not separately represent them.

In addition to aborting the privilege, defining the client relationship so narrowly can destroy the privilege in another way. The Northern District of California held that

Howrey waived the attorney-client privilege by reporting to the full board its finding following an options backdating investigation.

Certain instances of waiver are straightforward. When Howrey 'detailed for the Board the various stock option issues, improprieties and erroneous option grant dates that were discovered in the investigation,' . . . it waived the work product privilege with respect to its conclusions regarding which option grant dates were improper or erroneous.

Id. This finding undoubtedly came as a shock to the lawyers and their "client," the

Special Committee. Such a privilege dispute highlights the risks of failing to have carefully defined the "client."

In 1998, a Delaware state court assessed a similar situation, in which Orrick

Herrington was hired by a single-member Special Committee of a client board of

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directors -- to investigate possible options backdating.5 That court also found that

Orrick Herrington waived the attorney-client privilege protection by reporting on its investigation to the full board, which included two directors who themselves were targets of the investigation (and who were accompanied at the board meeting by their personal lawyers from Quinn Emanuel).6

5 Ryan v. Gifford, Civ. A. No. 2213-CC, 2008 Del. Ch. LEXIS 2, at *3, *10, *10-11, *11, *12, *12 n.9, *16, *17-18 (Del. Ch. Jan. 2, 2008) (unpublished opinion) (addressing a situation in which the law firm of Orrick Herrington and forensic accounting firm LECG conducted an investigation into possible options backdating by executives and directors of Maxim; noting that Maxim's board established a Special Committee composed of a single director, which was not an "independent Special Litigation Committee" under Delaware law; explaining that the single-member Special Committee retained Orrick, who did not provide a written report but instead presented an oral report to a Maxim board meeting attended by three directors represented by the law firm of Quinn Emanuel in the derivative action that prompted Orrick Herrington's investigation; noting that Maxim's board found that some directors received backdated options, but did not take any action to recover any damages; further explaining that Maxim "provided details of this work to third-parties, including NASDAQ and publicly to investors (through the SEC Form 8-K). Moreover, the Special Committee itself provided a number of documents to the SEC, the United States Attorney's Office, and Maxim's current and former auditors."; also noting that "the director defendants in this case have specifically made use of the Special Committee's findings and conclusions for their personal benefit and have argued to this Court that the Special Committee's exoneration of them should be accorded deference. The director defendants have made these arguments in a brief, opposing plaintiffs' motion to amend the complaint, in which coincidentally Maxim has expressly joined. Further, the director defendants have extensively relied upon the Special Committee's findings both in opposing plaintiffs' motion for summary judgment and in support of their own motion for summary judgment. At the time of the November 30 decision, in their unamended summary judgment brief, the director defendants explicitly rely upon the unwritten 'findings' of the Special Committee that purport to absolve the director defendants of liability." (footnote omitted); "[T]he director defendants have submitted an amended brief in support of their motion for summary judgment that purports to disavow reliance on the Special Committee's findings, despite their explicit reliance thereon in the first brief in support of their motion."; noting that in an earlier opinion "the Court ruled that Maxim, its Special Committee and Orrick must produce all material[s] related to the Special Committee's investigation that were withheld on grounds of attorney-client privilege."; "The Court also directed Orrick to turn over its work-product, including its interview notes, for in camera review. Orrick does not seek to appeal any aspect of this Court's ruling, including the ruling that plaintiffs have made a showing of good cause to obtain its non-opinion work product."; noting that Maxim did not appeal the court's earlier decision that the Garner doctrine overcame any privilege claim; after explaining that the court's Garner determination "provides an independent basis" for its conclusion requiring Maxim to disclose the documents; also noting the directors' essentially inaccurate description about whether they were relying on Orrick Herrington's report; "At the time of the November 30 decision, however, the director defendants explicitly asserted that the findings of the Special Committee were entitled to deference from this Court. Moreover, even if this Court ignores the suspicious timing of the director defendants' purported disavowal of reliance on the investigation, Maxim seeks to further avail itself of the Special Committee's report, which will redound to the benefit of the director defendants."; declining to certify an appeal).

6 Id. at *23.

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Wisdom of Carefully Defining the "Client"

For obvious reasons, lawyers and corporations with which the lawyers work

share an interest in carefully defining the "client" at the start of any representation -- at

least if application of the "default" position would frustrate the intended representation.

Lawyers planning ahead can avoid extreme prejudice by undertaking this

common sense step. In 2006, the Alabama Supreme Court held that a bankrupt

company's trustee could not gain access to documents created by Skadden, Arps --

because that law firm represented just the company's outside directors, not the

company.7

The court pointed to the following language in Skadden, Arps' retainer letter with

the corporation's outside directors.

We are pleased that you as outside directors (the "Outside Directors") of Just For Feet, Inc. (the "Company") have decided to engage [the Skadden law firm] to assist you in your review of various matters relative to the Company. . . .

7 Ex parte Smith, 942 So. 2d 356, 357-58, 360-61 (Ala. 2006) (addressing efforts by a bankruptcy trustee to obtain communications that the bankrupt company's outside directors had with the Skadden law firm before the bankruptcy; finding that the following language in the outside directors' retainer letter with Skadden created a separate attorney-client relationship between the outside directors and Skadden, that allowing them to withhold the documents from the bankruptcy trustee: "'We are pleased that you as outside directors (the "Outside Directors") of Just For Feet, Inc. (the "Company") have decided to engage [the Skadden law firm] to assist you in your review of various matters relative to the Company. . . . With respect to the Company and its subsidiaries and parties affiliated with the Outside Directors generally, it is our understanding that the [Skadden law firm] is not being asked to provide, and will not be providing, legal advice to, or establishing an attorney-client relationship with, the Company, its subsidiaries, any such affiliated party or any Outside Director in his individual capacity and will not be expected to do so unless the [Skadden law firm] has been asked and has specifically agreed to do so.'"; explaining that "if a corporate officer or director can have a personal attorney-client privilege with regard to communications with corporate counsel concerning the general affairs of the company, then directors and officers can have their own personal outside counsel and their communications with counsel regarding their personal rights and liabilities will be privileged, even though those communications pertain to matters relating to the affairs of the company. We hold that the outside directors and the Skadden law firm were free to form their own attorney-client relationship, to which JFF was not a party, regarding the directors' individual personal rights and liabilities stemming from 'various matters relative to the Company.'" (emphases added)).

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With respect to the Company and its subsidiaries and parties affiliated with the Outside Directors generally, it is our understanding that the [Skadden law firm] is not being asked to provide, and will not be providing, legal advice to, or establishing an attorney-client relationship with, the Company, its subsidiaries, any such affiliated party or any Outside Director in his individual capacity and will not be expected to do so unless the [Skadden law firm] has been asked and has specifically agreed to do so.

Ex parte Smith, 942 So. 2d 356, 357-58 (Ala. 2006) (emphases added).

Of course, lawyers and everyone else with whom the lawyer deals must

remember the "client's" identity on a day-to-day basis. This allows the lawyer to assure privilege protection where appropriate and (especially) to avoid waiver.

Unfortunately, courts sometimes inexplicably ignore these careful lawyers' best efforts. A 2012 Pennsylvania appellate court decision highlights this risk.8

8 Kirschner v. K&L Gates LLP, 46 A.3d 737, 742, 743, 744, 749, 749 n.3, 749, 749-50, 750, 751, 753, 753 n.6, 754 (Pa. Super. Ct. 2012) (holding that a liquidation trustee can pursue malpractice, breach of fiduciary duty, and other claims against K&L Gates on behalf of a bankrupt company, despite a retainer letter explicitly indicating that K&L Gates did not represent the company, but instead represented only the special committee of a board of directors; explaining that after several of its senior financial executives resigned after accusing CEO Podlucky of financial improprieties, Le-Nature's board of directors determined that it was "in the best interest of the Company to appoint a special committee of independent directors" to investigate matters; noting that the Special Committee determined that "it was critical to retain on behalf of the company, legal counsel with experience in conducting such investigations; noting that K&L Gates's retainer letter contained the following provision: "'We understand that we are being engaged to act as counsel for the special committee and for no other individual or entity, including the Company or any affiliated entity, shareholder, director, officer or employee of the Company not specifically identified herein. We further understand that we are to assist the Committee in investigating the facts and circumstances surrounding the aforementioned resignations and assist the Special Committee in developing any findings and recommendations to be made to the full Board of the Company with respect thereto. The attorney-client relationship with respect to our work, including our work product, shall belong to the Committee. Only the Committee can waive any privilege relating to such work.'"; noting that K&L Gates hired P&W as a financial expert pursuant to a retainer letter that contained the following sentence: "'P&W shall provide general consulting, financial accounting, and investigative or other advice as requested by K&L [Gates] to assist it in rendering legal advice to Le[-]Nature's." (alterations in original); explaining that K&L gave a draft of its investigation report to Podlucky, even though he was not a member of the Special Committee; reciting the report as finding no evidence that Podlucky had engaged in impropriety; pointing out that Poducky later hired K&L Gates on behalf of the company to prepare an initial public offering, but that eventually a custodian found "massive fraud" at the company, which caused it to declare bankruptcy; acknowledging that the trial court had dismissed the liquidation trustee's legal malpractice/negligence claim against the firm, because the firm had been retained to protect the interests of the shareholders

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In Kirschner v. K&L Gates LLP, 46 A.3d 737 (Pa. Super. Ct. 2012), a

Pennsylvania appellate court held that the liquidation trustee for Le-Nature could pursue

malpractice, negligence, breach of fiduciary duty and other claims against the law firm

of K&L Gates -- despite an explicit provision in the firm's retainer letter disclaiming any

representation of the company itself, and instead indicating that the company board's

Special Committee was the firm's sole client.

After a number of Le-Nature's senior financial executives left the company and

alleged that CEO Podlucky was engaging in financial improprieties, Le-Nature's board

of directors unanimously passed a resolution indicating that it was "in the best interest of

the Company to appoint a special committee of the independent directors to conduct an

rather than the company itself; reversing the trial court's finding, concluding "[t]he averments of the Amended Complaint, taken as true, establish that Le-Nature's, acting through its Board and the Board's Special Committee, sought the legal advice and assistance of K&L Gates's. Specifically, Le-Nature's sought K&L Gates's legal advice and assistance in investigating allegations of fraud, and in preparing findings and recommendations for action to be taken by Le-Nature's."; "As a committee of the Board, the Special Committee had the fiduciary duty to act in the best interests of not only the shareholders, but also the corporation."; "Contrary to the arguments of K&L Gates and Ferguson, no conflict of interest existed between Le-Nature's and the Special Committee as the Special Committee owed a fiduciary duty to act in the best interests of the company."; "By its Resolution, the Board authorized the Special Committee to retain counsel to conduct an investigation 'on behalf of the company.'"; "Under Delaware law, the Board could not authorize the Special Committee to act solely on behalf of investors. Such authorization would violate the Board's fiduciary duty to Le-Nature's. . . . [U]nder Delaware law, the Special Committee only could act in the best interests of Le-Nature's and its shareholders."; "K&L Gates retained P&W to provide, inter alia, consulting, financial and investigative advice to K&L Gates 'to assist it in rendering legal advice to Le[-]Nature's.'" (alteration in original); "In addition to the foregoing, the Amended Complaint asserts that K&L Gates provided a draft of its Report not only to the Special Committee, but also to Podlucky. . . . Podlucky was not a member of the Special Committee."; also reversing the trial court's finding that the liquidation trustee could not seek damages because the company was already insolvent when K&L Gates prepared its report; the "trial court rejected Trustee's claim for damages because Le-Nature's was insolvent at the time K&L Gates prepared its Report in December 2003"; "[W]e conclude that Trustee seeks traditional tort damages. The fact of Le-Nature's insolvency does not negate the harm allegedly resulting from K&L Gates's professional negligence."; "Despite the fact that other courts may have determined that similar complaints involving Le-Nature's have alleged deepening insolvency as damages, we conclude that the Complaint before this Court does not, under Pennsylvania law."; "According to the Amended Complaint, these damages were reasonably foreseeable and K&L Gates's malpractice enabled Podlucky and the interested directors to continue their fraudulent activity.").

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investigation" into the executives' resignations.9 The board appointed three independent directors to serve on the Special Committee, who then determined that "it was critical to retain on behalf of the company, legal counsel with experience in conducting such investigations."10

The Special Committee retained K&L Gates to conduct the investigation "on behalf of the Company." The law firm's retainer letter with the Special Committee contained the following paragraph:

We understand that we are being engaged to act as counsel for the special committee and for no other individual or entity, including the Company or any affiliated entity, shareholder, director, officer or employee of the Company not specifically identified herein. We further understand that we are to assist the Committee in investigating the facts and circumstances surrounding the aforementioned resignations and assist the Special Committee in developing any findings and recommendations to be made to the full Board of the Company with respect thereto. The attorney-client relationship with respect to our work, including our work product, shall belong to the Committee. Only the Committee can waive any privilege relating to such work.

Id. at 743.

To assist the investigation, K&L retained a financial expert, P&W, pursuant to a retainer letter that contained the following sentence:

P&W shall provide general consulting, financial accounting, and investigative or other advice as requested by K&L [Gates] to assist it in rendering legal advice to Le[-]Nature's.

Id. at 744 (alterations in original). K&L Gates later sent a draft of its report to Podlucky, even though he was not a member of the Special Committee. The firm found no

9 Id. at 742.

10 Id.

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widespread fraud, and was later retained by Podlucky on behalf of the company to help

with an initial IPO.

After new allegations of fraud, the company was placed in the hands of a

custodian, and later declared bankruptcy.

The appellate court acknowledged that the trial court dismissed the claims

against K&L Gates because the firm had been retained "solely to protect the interests of the remaining equity holders," rather than the company itself. Id. at 748.

The appellate court nevertheless reversed, concluding that

[t]he averments of the Amended Complaint, taken as true, establish that Le-Nature's, acting through its Board and the Board's Special Committee, sought the legal advice and assistance of K&L Gates. Specifically, Le-Nature's sought K&L Gates's legal advice and assistance in investigating allegations of fraud, and in preparing findings and recommendations for action to be taken by Le-Nature's.

Id. at 749. The appellate court pointed to a number of facts in support of its conclusion.

• "As a committee of the Board, the Special Committee had the fiduciary duty to act in the best interests of not only the shareholders, but also the corporation."11

• "Contrary to the arguments of K&L Gates and Ferguson, no conflict of interest existed between Le-Nature's and the Special Committee as the Special Committee owed a fiduciary duty to act in the best interests of the company."12

• "By its Resolution, the Board authorized the Special Committee to retain counsel to conduct an investigation 'on behalf of the company.'"13

11 Kirschner v. K&L Gates LLP, 46 A.3d 737, 749 (Pa. Super. Ct. 2012).

12 Id. at 749 n.3.

13 Id. at 749.

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• "Under Delaware law, the Board could not authorize the Special Committee to act solely on behalf of investors. Such authorization would violate the Board's fiduciary duty to Le-Nature's. . . . [U]nder Delaware law, the Special Committee only could act in the best interests of Le-Nature's and its shareholders."14

• "K&L Gates retained P&W to provide, inter alia, consulting, financial and investigative advice to K&L Gates 'to assist it in rendering legal advice to Le[-]Nature's.'"15

• "In addition to the foregoing, the Amended Complaint asserts that K&L Gates provided a draft of its Report not only to the Special Committee, but also to Podlucky. . . . Podlucky was not a member of the Special Committee."16

The appellate court also concluded that that liquidation trustee was seeking

traditional tort damages from the law firm, which negated the relevance of whether or

not the company was insolvent at the time K&L Gates provides its report.17

K&L Gates unsuccessfully sought the Pennsylvania Supreme Court's review of

the appellate court's reinstatement of the malpractice action against it.

• Gina Passarella, K&L Gates' Appeal of Le-Nature's Trustee $500 Mil. Suit Denied, Legal Intelligencer, Apr. 25, 2013 ("The Pennsylvania Supreme Court has declined to take a case in which K&L Gates was appealing the reinstatement of a $500 million lawsuit against the firm by the trustee of bankrupt bottling company Le-Nature's."; "K&L Gates and co-defendant accounting firm Pascarella & Wiker had asked the justices to review the Superior Court decision to reinstate the professional negligence and breach of fiduciary duty case against them. The high court denied that request in a one-page order late Wednesday."; "K&L Gates and Pascarella & Wiker had argued the firms only had a duty to the special committee of Le-Nature's that hired them in 2003, and not to a trustee of the now-bankrupt company.

14 Id. at 749-50.

15 Id. at 750.

16 Id. at 750.

17 The court pointed to the theory of "deepening insolvency," but found that the complaint did not allege such a theory. "Despite the fact that other courts may have determined that similar complaints involving Le-Nature's have alleged deepening insolvency as damages, we conclude that the Complaint before this Court does not, under Pennsylvania law." Id. at 753 n.6.

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Allegheny County Court of Common Pleas Senior Judge R. Stanton Wettick Jr. agreed, finding they had no obligation beyond the special committee and that the trustee could not claim damages for deepening insolvency of the company between the 2003 internal investigation and the 2006 collapse of the company."; "But Superior Court Judge John L. Musmanno said in his May 2012 opinion that the special committee had a duty to the company and K&L Gates was providing legal services to Le-Nature's through the special committee."; "'K&L Gates was retained to investigate the exact type of injury being inflicted upon Le-Nature's,' Musmanno said. 'By negligently conducting its investigation, K&L Gates affirmatively caused harm to Le-Nature's by concealing the looting of the company and wrongdoing by [former chief executive officer Gregory J.] Podlucky, and affirmatively representing that no evidence of fraud or misconduct existed.'"; "The amici law firms had argued in their brief to the Superior Court that 'for the first time,' the court ruled 'an implied attorney-client relationship could be inferred from circumstantial evidence even where two sophisticated parties have entered into a representation agreement that expressly disavows that such a relationship exists.' They argued the engagement letter between K&L Gates and the special committee expressly disavowed any relationship between the law firm and Le-Nature's.").

Perhaps not surprisingly, the law firm eventually settled the malpractice case --

paying nearly $24 million.

• Dan Packel, K&L Gates' $24M Malpractice Deal OK'd In Le-Nature's Case, Law360, Feb. 27, 2014 ("A Pennsylvania bankruptcy judge on Thursday approved a $23.75 million settlement between K&L Gates LLP and the liquidation trustee of defunct drink maker Le-Nature's Inc. in a legal malpractice case, a day after the accounting firm serving as co-defendant dropped its opposition.").

Best Answer

The best answer to this hypothetical is (D) THE CORPORATION (ACTING

THROUGH THE BOARD OF DIRECTORS).

B 6/14

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Resolving Intra-Corporate Disputes

Hypothetical 10

One of your law school classmates is interviewing for in-house law jobs. She is a careful planner, and she wants your reaction to two issues, "just in case they come up."

(a) If state law and the governing corporate documents require a majority board of directors vote to fire the company's lawyer, may she continue to represent the corporation if the board deadlocks on a motion to fire her?

(A) YES

(B) NO

(A) YES

(b) What should your roommate do if the head of one company division gives her direction that is directly contrary to that given by the head of another division?

ARRANGE FOR CORPORATE MANAGEMENT TO RESOLVE THE DISPUTE, AND FOLLOW ITS DIRECTION

Analysis

Lawyers representing corporations owe their duty to the corporation as an entity, not to any of its constituents. ABA Model Rule 1.13(a).

This basic rule seems easy to understand in the abstract, but can result in enormously difficult ethics situations for in-house and outside lawyers representing corporations.

Among other things, there might be some question about the identity of the client of a corporation's law department. ABA Model Rule 1.0 cmt. [3] explains that "[w]ith respect to the law department of an organization, including the government, there is ordinarily no question that the members of the department constitute a firm within the

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meaning of the Rules of Professional Conduct. There can be uncertainty, however, as to the identity of the client. For example, it may not be clear whether the law department of a corporation represents a subsidiary or an affiliated corporation, as well as the corporation by which the members of the department are directly employed."

(a) In-house and outside lawyers generally must follow the direction of a corporate client's duly elected board.

If the board must follow a certain procedure to terminate the lawyer, the lawyer may continue representing the corporation until the board takes the required action.

• Virginia LEO 930 (6/11/87) (it is not improper per se for a lawyer to continue representing a corporate board when two members of the board are satisfied with the lawyer and two are not; the lawyer must serve the interests of the board as a whole).

Lawyers ignoring these principles can face serious consequences.

• Ky. Bar Ass'n v. Hines, 399 S.W.3d 750, 769 (Ky. 2013) (suspending for two years a lawyer who ignored a majority of a board and filed an action on behalf of the corporation; "[T]he simple fact is that Hines [lawyer] was hired by the corporation, which acts through its board and officers. . . . If some of the board members and shareholders were dissatisfied, they had remedies available, namely, a shareholder derivative suit. But that is not what Hines did. Instead, he filed suit directly on behalf of the corporation. He even admitted that his suit should have been a shareholder derivative suit as the litigation progressed. The fact that some of the board and shareholders were dissatisfied did not justify Hines's decision to side with them and presume they were the lawful controllers of the company, and then to file suit directly on behalf of the corporation."; "In fact, the decision whether to pursue litigation directly on behalf of the corporation is lodged solely with the board of directors." (emphasis added)).

(b) Lawyers representing corporations may also represent their divisions, but must take direction from the ultimate source of the corporation's authority.

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The Restatement explains that lawyers representing corporate clients with separate divisions must follow the corporate client's decision-making process. This gives the corporation ultimate authority.

Whether a lawyer represents affiliated organizations as clients is a question of fact. . . When a lawyer represents two or more organizations with some common ownership or membership, whether a conflict exists is determined primarily on the basis of formal organizational distinctions. If a single business corporation has established two divisions within the corporate structure, for example, conflicting interests or objectives of those divisions do not create a conflict of interest for a lawyer representing the corporation. Differences within the organization are to be resolved through the organization's decision-making procedures.

Restatement (Third) of Law Governing Lawyers § 131 cmt. d (emphasis added).

Unlike most case law, the Restatement then expands this concept – referring to separate "organizations" within a corporate "enterprise." That sounds like subsidiaries rather than divisions. In any event, the Restatement acknowledges some regulatory differences between such separate "organizations" and divisions, but applies the same basic principles in that very different setting.

If an enterprise consists of two or more organizations and ownership of the organizations is identical, the lawyer's obligation is ordinarily to respond according to the decision- making procedures of the enterprise, subject to any special limitations that might be validly imposed by regulatory regimes such as those governing financial institutions and insurance companies.

Id. (emphasis added).

Thus, the Restatement explains that in a corporate family wholly-owned by the ultimate parent, lawyers receiving directions from corporate divisions or even wholly- owned corporate subsidiaries do not face a legal conflict of interest. At most, they must

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deal with political client-relations issues. These disputes might be more difficult to manage, but do not rise to the level of an ethics dilemma under this Restatement approach.

However, under the Restatement analysis, the issue becomes complicated in the case of subsidiaries that are less than wholly-owned.

The next paragraph of the Restatement's assessment of this issue describes the difference between a corporate client with wholly-owned subsidiaries and with only partially owned (even if still controlled) subsidiaries.

On the other hand, when ownership or membership of two or more organizations is not identical, the lawyer must respect the organizational boundaries of each and analyze possible conflicts of interest on the basis that the organizations are separate entities. That is true even when a single individual or organization has sufficient ownership or influence to exercise working control of the organizations. . . .

Id. An illustration provides additional guidance.

A Corporation owns 60 percent of the stock of B Corporation. All of the stock of A Corporation is publicly owned, as is the remainder of the stock in B Corporation. Lawyers has been asked by the President of A Corporation to act as attorney for B in causing B to make a proposed transfer of certain real property to A at a price whose fairness cannot readily be determined by reference to the general real-estate market. Lawyer may do so only with effective informed consent of the management of B (as well as that of A). The ownership of A and B is not identical and their interests materially differ in the proposed transaction.

Id. Illus. 2.

As mentioned above, this Restatement approach seems to differ dramatically from most bars' and courts' analysis – which tend to treat separate corporate

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subsidiaries as separate entities that the parent's in-house or outside lawyers might or might not represent as clients.

For instance, a 2008 New York City legal ethics opinion explained that in-house lawyers representing a corporate parent and a partially owned subsidiary "must act on the basis that the parent and each of its represented affiliates is a separate entity with separate interests." New York City LEO 2008-2 (9/08).

Thus, a subsidiary that is less than wholly-owned by its controlling parent must be considered a separate entity for conflicts, ethics and legal purposes. Of course, the controlling parent’s lawyer may also represent the subsidiary. That normally would be a joint representation, with all the ethics, privilege and other implications of such representations. Among the most important implication is such lawyer's duty to avoid representing the corporate parent in oppressing or otherwise harming minority shareholders. This duty does not make those minority shareholders the lawyer's clients – it means that the lawyer must take the minority shareholders’ interest into account when representing the corporation of which the shareholders are partial owners.

Best Answer

The best answer to (a) is (A) YES; the best answer to (b) is ARRANGE FOR

CORPORATE MANAGEMENT TO RESOLVE THE DISPUTE, AND FOLLOW ITS

DIRECTION.

B 8/16

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Identifying the Client Within a Closely Held Corporation

Hypothetical 11

You have represented a closely held corporation for several years, dealing with each of the two owners and many of the corporation's employees. The two owners have been quarreling more vigorously than usual lately, and you wonder what that means for your representation.

If the two owners become acutely adverse, can you represent the corporation and one of the owners in litigation against the other owner?

(A) YES

(B) NO

MAYBE

Analysis

Identifying the client in the corporate context can become more difficult with

closely held corporations.

Only a surprisingly few number of cases deal with this issue. The cases focus on

a number of topics involving the ramifications of attorney-client relationships. Of course, the most acute problems involve lawyers' ability to represent a closely held company against one of its owners, or jointly represent the company and one owner against another owner. In other cases, courts address the ability of a closely held corporation's owner to file a malpractice action against the company's lawyer. Some cases discuss an owner's attempt to obtain the company lawyer's files.

Analyzing Representations in the Context of Closely Held Corporations

Before turning to the majority "default" rule and the minority rule applying to

lawyers who represent closely held corporations, it is worth noting an obvious point.

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Lawyers can intentionally represent a closely held corporation and/or its constituents.

Those representations can be sole representations, or joint representations.

Importantly, any intentionally represented corporation or constituent deserves all the

rights that clients possess, absent some contractual limitation in a retainer agreement or

elsewhere.

In 2003, the California Bar dealt with a lawyer who was simultaneously

representing a closely held corporation and a CFO (on unrelated personal matters).

California LEO 2003-163 (2003).

The Bar dealt with two scenarios -- in which either the CFO himself or the corporation's President informed the lawyer about the CFO's possible sexual

harassment of several company employees. The Bar outlined the two scenarios as

follows:

Lawyer serves as an outside attorney for a closely held corporation, Corp. Lawyer handles most of Corp's general legal matters, including alerting Corp to, and advising Corp about, potential liabilities. Corp has been run for some time by its two principal shareholders, Prexy, the President, and CFO, the Chief Financial Officer, who are old friends. Lawyer has represented CFO on a number of personal matters not related to Corp. Some of CFO's personal matters remain pending, including the purchase and sale of real and personal property, a reckless driving charge, and family matters. Most recently, CFO consulted Lawyer on a modification of a support matter relating to his former marriage, and this support issue remains open. Lawyer does not represent Corp and CFO as joint clients on any single matter.

Lawyer learns that CFO might have sexually harassed several Corp employees. We are asked to consider Lawyer's duties if she learns of the possible sexual harassment in either of two ways: (1) CFO goes to Lawyer's office and asks to speak to Lawyer privately on a 'personal

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matter,' Lawyer asks CFO to continue, and CFO admits incidents of sexual harassment; or (2) Prexy tells Lawyer that Prexy has learned of a particular incident of sexual harassment by CFO, plus rumors of several others, and needs Lawyer's advice concerning what Corp should do.

Id.

The California Bar explained that if the CFO himself provided the information, the lawyer had to keep it secret from the corporate client.

Assuming that CFO did have an objectively reasonable basis for believing that CFO was speaking to Lawyer in confidence as CFO's personal attorney, then Lawyer's duty to preserve CFO's secrets would prevent Lawyer from revealing any information about the sexual harassment that Lawyer learned directly from CFO or as a result of her representation of CFO. Such information would be embarrassing or detrimental to CFO. This restriction means that Lawyer could not reveal CFO's admitted harassment to anyone affiliated with Corp, including Corp's Board or Prexy.

Id.

Because maintaining the confidentiality of the information would "impede Lawyer's ability to discharge her duties to Corp," the lawyer would have to withdraw from representing the closely held corporation if the CFO did not consent to the lawyer's disclosure to the corporation of the protected client information about his alleged sexual harassment. Id.

If CFO denies Lawyer permission to share with Corp the information that CFO has given to Lawyer, then Lawyer must withdraw from representing Corp on those matters to which the confidential information given to the lawyer by CFO is pertinent.

Id.

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In the second scenario, the lawyer acquired information from the President about

the CFO's possible sexual harassment. That scenario involved a completely different

conclusion.

Although the lawyer obviously could discuss the pertinent information with the

company's executives, the lawyer could not give advice adverse to her other client (the

CFO) -- even though the lawyer's representation of the CFO on personal matters bore no relationship to the company.

We now turn to the second variant of the hypothetical, which posits that Lawyer learns of CFO's alleged harassment from Prexy, the President of Corp, not from CFO. Under these facts, Lawyer learns the information about CFO as a result of Lawyer's representation of Corp, not CFO. Thus, Lawyer is not obligated to treat the information as CFO's client secret. Nevertheless, Lawyer still faces a potential conflict between Lawyer's duties to Corp and Lawyer's duty of loyalty to CFO. . . . If Lawyer were to provide advice to Corp about how to react to the allegations that CFO has committed sexual harassment, then Lawyer will be giving legal advice to Corp that is adverse to CFO. Such advice would almost certainly involve potential adverse employment consequences to CFO, as well as civil liability.

Id.

Because the lawyer could not "cure the conflict by unilaterally dropping CFO as a

client," the lawyer could advise the company about the sexual harassment only with the

CFO's consent -- which the lawyer could request only if the company authorized the

disclosure of the company's protected client information to the CFO. Id. And the CFO's

failure to consent would require the lawyer's withdrawal from representing the company

on that matter.

If Corp will not allow Lawyer to seek CFO's consent, or if CFO declines to waive the duty of loyalty, then Lawyer must

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withdraw from representing Corp if Lawyer cannot advise Corp competently without violating Lawyer's duty of undivided loyalty to CFO. Lawyer is obligated to withdraw from representing Corp only to the extent necessary to resolve the conflict of interest. On the facts presented to us, we believe that Lawyer would have to withdraw from her representation of Corp to the extent that Lawyer's representation includes identifying and assessing potential claims against Corp arising from CFO's conduct.

Id.

These principles apply with equal force to all corporations and their constituents, but lawyers representing clients in a closely held corporation context are more likely to intentionally represent constituents -- thus triggering all of the dilemmas involving confidential information and conflicts.

In 2014, a New Jersey court dealt with conflicts within a closely held corporation.

Comando v. Nugiel, Dkt. No. A-2403-13T4, 2014 N.J. Super. Unpub. LEXIS 1365 (N.J.

Super. Ct. App. Div. June 11, 2014). In that case, a law firm representing a closely held corporation and one of its two owners faced a disqualification motion filed by the other owner. She claimed that the law firm had also represented her on related matters. The court described the law firm's work for the closely held corporation.

In early 2011, Comando [owner seeking the law firm's disqualification] and Nugiel [other owner] formed 10 Centre [closely held corporation] as a holding company to acquire and manage real property that would become RCP's [tenant owned by Nugiel] headquarters. Nugiel requested Nash [lawyer] and NMM [Nash's law firm] to provide legal representation in '(1) the formation of the limited liability company, (2) preparation of the RCP lease for the property, (3) preparation of an operating agreement for [10 Centre], and (4) assistance with legal issues surrounding obtaining the financing needed by [10 Centre] to purchase the new headquarters' for RCP. There is no mention of the preparation or existence of a new engagement letter for

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these new legal services and nothing to explain what role Comando had in engaging NMM. NMM incorporated 10 Centre and served as its registered agent. In preparation of 10 Centre's operating agreement, Nash acknowledged he conducted conference calls with Nugiel and Comando, summarized provisions of the drafted documents, and emailed a memo to both Nugiel and Comando regarding modifications of the agreement terms. Nash also assisted with the preparation, modification and execution of an 'agreement for purchase and sale' of the realty ultimately acquired by 10 Centre. In the purchase of the realty, Nash assisted with the preparation, review and execution of several agreements related to the intricate multi-million dollar acquisition and the financing and re-financing of a bridge loan. It is unclear whether he provided individual legal advice to Nugiel regarding this transaction, while also acting as 10 Centre's counsel. Nash also drafted a lease agreement allowing RCP to lease the property acquired by 10 Centre for twenty years at a flat rent. In this regard, Nash insists he took direction from Nugiel and 'never gave [] Comando any personal advice or counsel on those issues.'

Id. at *6-8.

In resisting the owner's disqualification motion, the law firm relied on one of its lawyer's memoranda "accompanying transmittal of 10 Centre's proposed operating agreement, in which he stated:"

As an initial matter (and as you both know) I must stress that I represent [Nugiel] and RCP [] in several matters. I have drafted the attached based on your instructions, but I do not represent [Comando] in connection with these matters. [Comando], this operating agreement is a complicated document, I advise you to obtain separate counsel to advise you and advocate for your interests in connection with the attached. Review of this cover note is not a substitute for a careful review of the attached with your own counsel. Please let me know if you would like me to refer an attorney to you.

Id. at *8-9 (emphasis added).

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However, the court rejected the lawyer's argument that his law firm had never represented Comando.

This assertion contradicts his claim of serving as counsel for the corporation not its members and also his written representations contained in an opinion letter delivered to TD Bank in respect of the highly complex financing arrangement. In issuing his legal opinion, Nash stated NMM "acted as special counsel to 10 Centre Drive, LLC (the 'Borrower'), RCP Management Company, Inc. (the 'Equity Guarantor') and Mary Faith Radcliffe and Elizabeth Comando (each, an 'Individual Guarantor' and collectively, the 'Individual Guarantors') in connection with the closing . . . of a $1,500,000 mortgage loan from you to Borrower (the 'First Mortgage Loan') and a $350,000 bridge loan from you to Borrower (the 'Bridge Loan,['] and together with the First Mortgage Loan, the 'Loan Facilities')."

Id. at *8 (emphases added).

The court found that the law firm had represented Comando, and criticized the trial court for not having conducted an evidentiary hearing focusing on the extent of that representation.

[W]e conclude the record is far too limited and contains material factual disputes making this court unable to discern the full extent and nature of NMM's prior legal representation of Comando, which could only have been determined following an evidentiary hearing. The evidence certainly shows NMM provided limited legal services to her and also rendered extensive legal services to 10 Centre, as well as RCP and Nugiel. . . . Regarding Comando's claim of disqualification based on her prior representation, although we conclude the judge inaccurately found NMM provided no legal representation to her, the record does not allow this court fully assess the extent and nature of that representation. Nevertheless, NMM's complete withdrawal renders the question moot.

Id. at *3-5 (emphases added).

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The law firm apparently saw the handwriting on the wall, because it had already

withdrawn from representing the closely held corporation by the time the court dealt with

the now-moot disqualification motion.

A 2018 New Jersey case dealt with the same issue, with the same disqualification result.

• Halligan v. O’Connor, Dkt. No. A-0819-17T1, 2018 N.J. Super. Unpub. LEXIS 2202, at *1-2, *9-10, *11, *12, *12-13 (N.J. Super. Ct. App. Div. Oct. 5, 2018) (disqualifying a law firm representing a company owned by two individuals, after one of the individuals disclaimed any agreement to have the company hire the law firm; “Plaintiff Karl Halligan and defendants O’Connor and Harry Hodkinson owned and operated two businesses: Park Avenue Bar & Grill, LLC (Park Avenue), and defendant H&H Real Estate Investments, LLC (H&H). Halligan was the managing member of both companies.” (footnote omitted); “In a series of e-mails, Hodkinson made it abundantly clear that his interests were adverse to O’Connor’s. He disagreed with O’Connor’s decisions regarding H&H, objected to the sale of the H&H property, opposed Murray-Nolan’s fee application, opposed O’Connor’s application for expenses, and knew that O’Connor discussed removing him from H&H with both counsel.”; “Although Hodkinson and O’Connor share an interest in minimizing Halligan’s portion of the escrowed funds, between them their interests are wholly adverse because each seeks a greater percentage of the proceeds. Hodkinson alleged O’Connor was trying to remove him from H&H. They were not on friendly terms, and had not communicated for more than a year. The trial court properly found ‘there is a clear conflict between the interest that must be expressed by [ ] Hodkinson and advanced by [ ] O’Connor . . . . The [actual] conflict that exists certainly outweighs the mutuality of interest that is possessed.’” (alterations in original); “Independent of his conflict with O’Connor, Hodkinson’s conflict with his attorneys alone required disqualification. RPC 1.7(a)(2) states that a concurrent conflict of interest exists if ‘there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client, or a third person or by a personal interest of the lawyer.’”; “Hodkinson communicated to Murray-Nolan that she did not represent him or his interests, and complained that she sent documents to the court in his name without his review or approval. The record suggests that Murray-Nolan and Turner had at least the appearance of favoring O’Connor above Hodkinson, placing one client’s interest above the other. . . . ‘A lawyer should not be permitted to put himself in a position where, even unconsciously he will be tempted to ‘soft pedal’ his zeal in furthering the interests of one client in order to avoid an obvious clash with those of another.

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. . .’ Where Hodkinson had no working relationship with either attorney, and they in turn continued to pursue matters at O’Connor’s instruction, counsel was in a position that requires removal.”).

If one closely held corporation's owner brings his or her lawyers "to the deal," those lawyers may lose sight of their equal duty of loyalty to the owner and to the corporation which that owner only partially owns.

A 1994 Fairfax County Virginia case involved a large law firm lawyer running into this problem.

• Saundra Torry, Judge Takes Firm to Task Over Conflicts of Interest, Wash. Post, June 13, 1994 ("A Fairfax County judge last week hit prominent D.C. lawyer Deanne Siemer and her firm, Pillsbury Madison & Sutro, with a $500,000 legal malpractice judgment, finding that Pillsbury lawyers violated conflict-of-interest rules by siding against their own client, a lobbying firm. In a harshly worded opinion, Circuit Court Judge Jane Roush asserted that Siemer 'willfully ignored' the D.C. Rules of Professional Conduct for lawyers, and that the law firm shared the blame for failing to heed the warnings of junior associates that the 'dual representation . . . was rife with conflicts of interest.' According to trial testimony, when internal tensions erupted at the lobbying firm of Murphy & Demory (a District firm that is incorporated in Virginia), Pillsbury lawyers assisted one partner, retired Adm. Daniel Murphy, in his plans to take control of the small corporation or divert its clients to a new firm, leaving Murphy & Demory to 'wither.' At the time, Pillsbury lawyers represented Murphy & Demory as a corporation, the judge ruled, and owed their allegiance to the entire firm, rather than to any individual officer. The ruling came in a lawsuit filed by the lobbying firm and Willard L. Demory, the partner left behind when Murphy resigned to start a competing lobbying firm. In the midst of the feud between Demory and Murphy, Demory fired Pillsbury and hired John Dowd, of Akin, Gump, Strauss, Hauer & Feld. Demory's lobbying firm later sued Murphy for breach of contract and Pillsbury for malpractice. The judge also awarded Demory's firm $1 million on his claims against Murphy." (emphasis added); "In a July 1992 computer e-mail message, Siemer [Pillsbury partner] asked [Pillsbury] associate Frazer Fiveash to research whether it was 'feasible for Dan [Murphy] to set up a new corporation and divert new business to [it] . . . while allowing the old corporation to wither. . . .' The message was used as a trial exhibit by the Akin, Gump legal team, which included Larry Tanenbaum, Joseph Esposito and Lucy Pliskin. At some points during the 1992 dispute, Pillsbury billed Murphy & Demory for the work it had done at Murphy's behest -- work that Demory knew nothing about. For instance, Pillsbury sent Murphy & Demory a

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$662 bill for researching Murphy's options, including forcing the company to dissolve. The bill, signed by Siemer, said the work had been on 'corporate matters.' Siemer, according to court records, later billed the company, at $305 an hour, for some of her time, too." (emphases added); "Siemer, with Pillsbury since 1990 and a onetime partner at Wilmer, Cutler & Pickering, also was haunted at trial by her own ethics expertise. She has written a book, 'Understanding Modern Ethical Standards,' for the National Institute on Trial Advocacy, a nonprofit group that teaches young lawyers how to try cases. Known nationally as a fierce litigator, Siemer is now the institute's chair-elect." (emphasis added)).

Even large corporations can face these issues.

• In re CBS Corp. Litig., Consol. C.A. No. 2018-0342-AGB, 2018 Del. Ch. LEXIS 231, at *8, *8-9, *14, *15, *15-16, *16-17, *18-19, *19, *19-20 (Del. Ch. July 13, 2018) (analyzing an effort by Redstone-controlled NAI (which controls approximately eighty percent of CBS's voting power and ten percent of CBS's economic stake) to discover communications between a CBS board Special Committee and its communications with CBS's regular outside counsel Wachtell Lipton about the Committee's decision to reject Redstone's suggestion to merge CBS and Viacom; acknowledging that NAI did not seek communications with the Special Committee's separate law firms, but also denying NAI discovery of the Special Committee's communications with Wachtell Lipton; “In its motion, the NAI Parties seek to compel the CBS Parties to produce two categories 'of privileged materials involving communications with CBS Counsel from before May 14, 2018: '(1) Communications with and between CBS Counsel and any officer or director of CBS. (2) Communications between the (i) members of the special committees of the CBS Board formed to consider a potential CBS/Viacom transaction or committee counsel, on the one hand, and (ii) CBS Counsel, on the other hand.'“; “The term 'CBS Counsel' is defined as 'in-house and outside counsel to CBS and its board,' which means, for purposes of this motion, in- house counsel and Wachtell Lipton. The NAI Parties contend that the NAI Affiliated Directors are entitled to the above two categories of documents on the theory that they have a right as directors of a Delaware corporation to unfettered access to any legal advice rendered to CBS or other members of its Board as joint clients of CBS Counsel.”' (footnotes omitted); “When the corporation seeks to assert privilege against a director, the corporation 'has the burden to establish when sufficient adversity existed.'“ (citation omitted); “Turning to the period from when the 2016 Special Committee was formed in September 2016 until May 14, 2018, a sufficient record exists in my view for the court to provide guidance on the two categories of information the NAI Parties seek for that time period. I begin with the second category. To repeat, that category seeks 'communications between the (i) members of the special committees of the CBS board formed to consider a potential

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CBS/Viacom transaction or committee counsel, on the one hand, and (ii) CBS Counsel, on the other hand.' In my opinion, the NAI Affiliated Directors (and thus the NAI Parties) are not entitled to this information.” (footnote omitted); “In asking the Board to consider a potential combination of CBS and Viacom, the NAI Parties placed themselves across the negotiating table from CBS. As such, the NAI Parties created sufficient adversity with CBS such that the NAI Affiliated Directors could not -- to use the court's words from Kalisman [Kalisman v. Friedman, 2013 Del. Ch. LEXIS 100, (Del. Ch. Apr. 17, 2013)] – 'have a reasonable expectation that [they were] a client of the board's counsel or the Special Committee's counsel with respect to' matters delegated to the Special Committees. In forming a Special Committee in 2016 and again in 2018 to consider a potential combination, CBS employed appropriate governance procedures that openly put the NAI Affiliated Directors on notice that they would be segregated from the CBS side of the deliberations, including privileged information relating thereto. At that point, the Board -- operating through the Special Committees -- was 'entitled to deliberate -- and receive legal advice -- in confidence and without having to share that advice with the director whose interests are adverse[.]'“( second and third alterations in original) (footnote omitted) (second emphasis added); “Consistent with the foregoing, the NAI Parties do not take issue with being segregated from advice provided by counsel that the Special Committees separately retained (White & Case LLP and Weil, Gotshal & Manges LLP). Indeed, the NAI Parties concede that adversity was 'manifest' between the NAI Affiliated Directors and the Special Committees and their separate counsel. The NAI Parties nevertheless assert that the NAI Affiliated Directors are entitled to access communications between CBS Counsel, on the one hand, and the Special Committees and/or their separate counsel, on the other hand. Although no precedent has been cited analyzing this specific issue, I am not persuaded by the NAI Parties' argument and believe that the adversity should have been equally manifest to the NAI Affiliated Directors in this situation as well.” (footnote omitted); “In short, given the adversity of interests that prompted the creation of the Special Committees and given the mandate they were provided as part of a transparent process, the NAI Affiliated Directors could not have had a reasonable expectation that they were clients of CBS Counsel insofar as CBS Counsel was acting in aid of the process undertaken by either of the Special Committees. To reach the opposite conclusion would undermine the legitimate expectation that the Special Committees' deliberative processes would be held in confidence and would not be shared with designees of the party whose adverse interests necessitated their formation in the first place. Accordingly, the NAI Parties' request to compel the second category of information is denied.”; “The first category of information the NAI Parties seek is 'communications with and between CBS Counsel and any officer or director of CBS.' My reasoning with respect to the second category dictates my disposition of this request as well. That is, insofar as the first category seeks any communications between CBS

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Counsel and an officer or director of CBS that was undertaken in aid of the process of either of the Special Committees, the motion to compel will be denied for the reasons discussed previously. Otherwise, the motion will be granted because no factual basis has been identified to support the conclusion that the NAI Affiliated Directors were made aware (or reasonably should have been aware) that CBS Counsel was not representing them jointly with the other CBS directors with respect to any matter other than the matters falling within the purview of the Special Committees for which CBS Counsel provided assistance.” (footnote omitted); “Finally, I reject the CBS Parties' request that access to any CBS privileged information that may be provided as a result of this ruling be limited to the NAI Affiliated Directors and not shared with the NAI Parties or their counsel. Apart from the fact that no clear precedent has been cited supporting the imposition of such a condition, practical considerations dictate this conclusion. Given that Ms. Redstone is one of the NAI Affiliated Directors (as well as one of the NAI Parties) and, by all accounts, is the key decision-maker for NAI, it is simply not realistic or practical to believe that any information to which she may become privy as a result of this ruling could be segregated from her thought process as an adversary of CBS in this case. That said, all of the NAI Parties and the NAI Affiliated Directors are bound by the confidentiality order governing the use of discovery material in this action.” (footnote omitted) (emphasis added)).

General "Default" Rule: Lawyers Represent the Closely Held Corporate Entity and Not Its Owners

As with all corporations, ABA Model Rule 1.13(a)'s "default" position recognizes that a corporation's lawyer represents the entity rather than any of its constituents.

However, it is easy to see how corporate constituents in a closely held corporation context might reasonably believe that the company lawyer also represents them -- or at least feign such a belief if it suits their purposes.

Most corporations follow the general "default" rule absent evidence to the contrary.

• Weingarden v. Milford Anesthesia Assocs., P.C., No. NNHCV116016353S, 2013 Conn. Super. LEXIS 1239, at *20, *20-21, *22-23 (Conn. Sup. Ct. May 30, 2013) ("The other basis for the plaintiff's claim under rule 1.9 is that by representing Milford Associates, Mathieson represented the shareholders and thus the plaintiff as a shareholder is a former client of Mathieson. Such an argument is easily rejected in light of clear authority to the contrary. . . . Rule 1.13 makes clear that a shareholder of an organization is not the client

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of that organization's lawyer absent some set of facts independently creating an attorney-client relationship." (emphasis added); "This principle is further supported in case law. In the analogous context of partnerships, '[a] partnership usually is a legal entity and is the lawyer's client. Thus a lawyer who represents a partnership does not thereby become counsel or owe a duty to the partners.'" (citation omitted); "The plain language of rule 1.13, the official comment to that rule, appellate case law explaining entity theory and the overwhelming stance taken in other Superior Court decisions makes it abundantly clear that the plaintiff cannot establish an attorney-client relationship with Mathieson simply by relying on his status as a shareholder of an organization that Mathieson represented. The plaintiff would have to demonstrate some other facts creating such a relationship, none of which have been shown here." (emphases added)).

• Nilavar v. Mercy Health Sys., 143 F. Supp. 2d 909, 914, 915, 917 (S.D. Ohio 2001) (holding that the lawyer who represented a closed corporation did not also represent a major shareholder, and therefore could be adverse to the shareholder; "The fact that SRI was a close corporation does not lead to the conclusion that Plaintiff reasonably believed that he personally had an unrestricted attorney-client relationship with Mehnert. Between 1970 and 1983, SRI consisted of six physician-shareholders . . . . When Dr. Bavendam retired in 1983, the corporation was restructured, with the five remaining principals receiving equal shares in the corporation . . . . At the time, accordingly, Plaintiff would have had a twenty percent (20%) interest in the corporation. By 1991, SRI had approximately eleven principals . . . . Thus, assuming that each principal had an equal interest in the corporation, Plaintiff held approximately a nine percent (9%) interest in SRI at that time. As stated by the Correspondent Servs. [Correspondent Servs. Corp. v. J.V.W. Inv. Ltd., No. 99 Civ. 8934 (RWS), 2000 U.S. Dist. LEXIS 11881 (S.D.N.Y. Aug. 16, 2000)] court, even twenty percent is 'a far cry from the 50-50 ownership stake in Rosman [Rosman v. Shapiro, 653 F. Supp 1441 (S.D.N.Y.1987)].' Therefore, the degree to which Plaintiff shared an ownership interest in SRI does not provide a strong basis for the conclusion that Plaintiff believed, at the time that he communicated with SRI's corporate counsel, that he was communicating with Mehnert as his personal attorney." (emphasis added); "Although Plaintiff has stated in his affidavit that he was not informed by Mehnert that Frost & Jacobs was representing SRI alone, even when his and SRI's interests were aligned and, therefore, that Plaintiff should retain counsel to protect his interests, Plaintiff has not indicated that he entered into individual transactions or agreements with SRI, which would have warranted consultation with separate counsel. Plaintiff has not stated that he would have engaged separate counsel with regard to certain transactions, but for his belief that Mehnert and Frost & Jacobs were acting for his benefit, as well as for the benefit of SRI. . . . In short, Plaintiff has not indicated, in any respect, that he believed that Mehnert and Frost & Jacobs implied that they were

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provided legal services for him personally, as well as for SRI, with regard to any transaction between himself and SRI. Accordingly, Plaintiff has not presented evidence to support the conclusion that Mehnert's failure to inform Plaintiff that he and Frost & Jacobs were acting solely for SRI led Plaintiff reasonably to believe that Mehnert had acted as his personal counsel."; "Plaintiff has provided no evidence that: (1) either Mr. Mehnert or Frost & Jacobs provided personal legal services to him, unconnected with the corporation; (2) either Mr. Mehnert or Frost & Jacobs provided specific services for SRI principals, in addition to the corporation . . .; or (3) that he paid for any legal services by Frost & Jacobs, . . . . In essence, Plaintiff has not provided evidence that he reasonably believed that Mr. Mehnert and Frost & Jacobs represented him individually, in addition to SRI, thus creating an attorney-client relationship between Frost & Jacobs and himself. Rather, Plaintiff's evidence indicates that he believed that his communications with Mr. Mehnert were confidential vis-à-vis MHS-WO [Mercy Health Systems – Western Ohio], but not vis-à-vis SRI and its principals. Therefore, Plaintiff has not established that he personally had an attorney-client relationship with Mr. Mehnert or Frost & Jacobs. Accordingly, Plaintiff's Motion to Disqualify Frost & Jacobs is OVERRULED." (footnote omitted) (emphasis added)).

• Correspondent Servs. Corp. v. J.V.W. Inv. Ltd., No. 99 Civ. 8934 (RWS), 2000 U.S. Dist. LEXIS 11881, at *36, *36-37 (S.D.N.Y. Aug. 16, 2000) (refusing to disqualify Shaw Pittman from adversity to an individual who owned an interest in the corporation that Shaw Pittman represented; finding that the attorney-client relationship existed between Shaw Pittman and the corporation rather than the individual; "Here, the words and actions of the parties demonstrate that Shaw Pittman was engaged to act as attorney for JVW [corporation], not Kelleher [individual seeking to disqualify Shaw Pittman] individually. First, Kelleher concedes in an affidavit that he was 'acting on behalf of JVW' when he identified Shaw Pittman as a potential firm to represent JVW in the attempt to recover the missing assets. . . . Although Kelleher also asserts in the affidavit that Shaw Pittman was retained 'to act as the attorneys for JVW, Waggoner, and myself,' . . . this statement is not supported by any of the documents submitted in connection with these motions." (emphasis added); "Caruso wrote to Kelleher after the conference call with Kelleher and Duperier. The letter is addressed to Kelleher as Director of JVW and Trustee, stated that 'As the Director and Trustee, you no doubt possess E-mail, documents, etc. in your computer, in originals, or in first-stage fax copies,' and requested that copies of those be sent to Shaw Pittman to provide a background to the case. According to Caruso's (Shaw Pittman attorney) uncontradicted affidavit, Kelleher then faxed Caruso a quantity of materials consisting largely of JVW corporate documents and correspondence between Kelleher and others on JVW corporate letterhead. In addition, Shaw Pittman's retainer was paid by JVW, not Kelleher, and Shaw Pittman's engagement letter stated that Shaw Pittman was 'pleased to

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have been engaged to represent J.V.W. Investments, Ltd.' for the purpose, inter alia, of recovering 'amounts due and owing to J.V.W. Investments, Ltd.' Shaw Pittman sent a bill on November 17, 1998 to 'J.V.W. Investments Ltd.' At Kelleher's address. Other documents support the conclusion that Kelleher, likewise, considered Shaw Pittman to be JVW's attorneys." (emphasis added)).

• Jesse v. Danforth, 485 N.W.2d 63, 66, 67, 68, 68-69, 69 (Wis. 1992) (holding that a law firm's pre-incorporation representation of individuals did not prevent the law firm from adversity to two of the individuals on unrelated matters; "We conclude that the entity rule does extend to Drs. Danforth and Ullrich such that DeWitt's [Law firm] pre-incorporation involvement with Drs. Danforth and Ullrich is properly characterized as representation of MRIGM [a corporation created by the law firm at the direction of 23 doctors, including the two individual doctors now seeking to disqualify the law firm from adversity in an unrelated matter], not Drs. Danforth or Ullrich, i.e., DeWitt's client was and is MRIGM, not Drs. Danforth or Ullrich."; "If a person who retains a lawyer for the purpose of organizing an entity is considered the client, however, then any subsequent representation of the corporate entity by the very lawyer who incorporated the entity would automatically result in dual representation. This automatic dual representation, however, is the very situation the entity rule was designated to protect corporate lawyers against."; We thus provide the following guideline: where (1) a person retains a lawyer for the purpose of organizing an entity and (2) the lawyer's involvement with that person is directly related to that incorporation and (3) such entity is eventually incorporated, the entity rule applies retroactively such that the lawyer's pre-incorporation involvement with the person is deemed to be representation of the entity, not the person." (emphasis added); "In essence, the retroactive application of the entity rule simply gives the person who retained the lawyer the status of being a corporate constituent during the period before actual incorporation, as long as actual incorporation eventually occurred."; "This evidence overwhelmingly supports the proposition that the purpose of Flygt's pre-incorporation involvement was to provide advice with respect to organizing an entity and that Flygt's involvement was directly related to the incorporation. Moreover, that MRIGM was eventually incorporated is undisputed."; also finding that the individual doctors could not disqualify the law firm based on confidential information they gave the lawyer [who handled the incorporation]; "Drs. Danforth and Ullrich also contend that they provided certain confidential information to attorney Flygt that should disqualify DeWitt under SCR 20:1.6, the confidential information rule. Defendants point to questionnaires Flygt provided to the physicians involved in the MRI project which inquire, in part, as to the physicians' personal finances and their involvement in pending litigation."; "Because MRIGM, not the physician shareholders, was and is the client of DeWitt, and because the communications between Drs. Danforth and Ullrich were directly related to

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the purpose of organizing MRIGM, we conclude that Drs. Danforth or Ullrich cannot claim the privilege of confidentiality."; finding that the law firm's current representation of a malpractice plaintiff suing the two doctors was not "directly adverse" to the corporation, even though the malpractice case could result in the doctors losing their licenses and therefore depriving the corporation of two shareholders and its president (emphasis added)).

This general rule also applies in reverse. Several cases have held that lawyers representing owners of a closely held corporation do not necessarily represent the corporate entity when they file derivative actions -- even though the actions theoretically involve the lawyers representing the corporate entity's best interests.

• Simms v. Rayes, 316 P.3d 1235, 1238, 1238-39, 1239, 1240 (Ariz. 2014) (declining to disqualify Greenberg Traurig from simultaneously representing a minority owner of a limited partnership in a derivative case against other partners, while defending the minority owner in a lawsuit brought by the limited partnership; "As TP Racing [limited partnership] concedes, no attorney-client relationship exists between GT [Greenberg Traurig] and TP Racing. An attorney-client relationship exists when a person has manifested to a lawyer his intent that the lawyer provide him with legal services and the lawyer has manifested consent to do so. . . . Nothing in the record shows that TP Racing manifested to GT its intent that GT provide legal services to it or that GT manifested any consent to do so. GT's only attorney-client relationship is with Ron [minority partner of TP Racing]."; "The fact that GT's client Ron -- in his capacity as a minority partner of TP Racing -- has filed derivative claims on behalf of TP Racing changes nothing. Although no Arizona appellate court has considered the issue, courts that have considered the issue have held that lawyers are not disqualified from representing clients who are simultaneously pursuing direct claims against a corporation and derivative claims on behalf of that corporation." (emphasis added); "Derivative actions allow a minority shareholder to pursue a claim on behalf of a corporation when the management of the corporation has refused to pursue the claim itself. . . . The corporation is merely a nominal party in a dispute between a minority shareholder and the management that controls the corporation. . . . The corporation thus is not a 'client' of the lawyer for the minority shareholder and the lawyer has no attorney-client relationship with it."; "Because the lawyer in a derivative action has an attorney-client relationship only with the minority shareholder, nothing prevents the lawyer from also representing the minority shareholder on any direct claims against the corporation or its management that arise from the same set of facts. The shareholder may sue directly for harms the mismanagement of the corporation has caused him personally, and derivatively for harms the

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mismanagement has caused the corporation." (emphasis added); "TP Racing nevertheless argues that even though no attorney-client relationship exists between GT and TP Racing, GT still has a conflict of interest under ER 1.7(a) because the derivative claims impose a fiduciary duty on GT to TP Racing that conflicts with GT's duty to Ron. Although a fiduciary duty does exist in a derivative action, it exists between the corporation or partnership and the minority shareholder or partner asserting the derivative claim. . . . Thus, Ron, as the minority limited partner asserting the derivative claim, has a fiduciary duty to act in TP Racing's interest. GT is counsel for the person having the fiduciary duty to TP Racing; the firm itself has no separate fiduciary duty to TP Racing." (emphases added)).

• Shen v. Miller, 150 Cal. Rptr. 3d 783 (Cal. Ct. App. 2012) (holding that a lawyer can represent the fifty-percent owner of a company in a derivative action and represent the same individual in an action against the other fifty-percent owner; noting that the lawyer also represented the fifty-percent owner in a wind-up lawsuit adverse to the company; rejecting the defendant half-owner's argument that the plaintiff's lawyer conflict because he was simultaneously representing the company in the derivative case while being adverse to it in the wind-up case; holding that the plaintiff's lawyer filed a derivative action "on behalf of" the company but did not represent the company; explaining that a lawyer representing a plaintiff in a derivative case is actually adverse to the company, although the company benefits if the plaintiff wins).

Under this majority approach, a closely held corporation's lawyer generally can

represent the corporation in litigation against one or more of the corporation's

constituents, because the lawyer has an attorney-client relationship with the corporate entity and not the constituents.

• Stanley v. Bobeck, 2009-Ohio-5696, at ¶ 16 (Ohio Ct. App. 2009) (reversing a lower court's order disqualifying a lawyer who had represented a limited liability company from representing the company in an action brought by a member of the limited liability company; "The trial court made an exception to this rule by concluding a closely held corporation is different from a large corporation because it is more like a partnership. No exception, however, was made regarding close corporations in the Rules of Professional Conduct. There is also no case law indicating that a different standard applies when the corporation is a closely held corporation. Moreover, there is no evidence that Stanley [member of the limited liability company] believed that MRFL [law firm] was acting as his personal attorneys when representing Sunshine I as Stanley never conferred with MRFL on legal matters. Therefore, because

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there was no prior attorney-client relationship between Stanley and MRFL, the first prong of the Dana [Dana Corp. v. Blue Cross & Blue Shield Mut. of N. Ohio, 900 F.2d 882 (6th Cir. 1990)] test was not met." (emphasis added)).

• Rhode Island LEO 2005-10 (11/10/05) (holding that a lawyer who represents a corporation can be adverse to constituents of the corporation; explaining the factual setting: "Two inquiring attorneys provided legal services to Corporation A relative to permits necessary for the development of real estate owned by the corporation. One inquiring attorney provided legal services relating to municipal permits; the other provided legal services relating to state environmental permits. Corporation A was then sold to a newly created corporation, Corporation B, which consisted of the same four principles and shareholders as Corporation A. The inquiring attorneys then also provided legal services to Corporation B relative to the permits for the original development project which Corporation B took over, but eventually abandoned because of financial reasons."; "Subsequently, Corporation B conveyed its tangible and intangible assets to Corporation C, an existing entity. The principals and shareholders of Corporation C are different from those of Corporation B. Corporation C wishes to proceed with the original development project, and has asked the inquiring attorneys to represent it relative to the necessary state and municipal permits."; "Meanwhile, however, two of the principals/shareholders of Corporation B, disgruntled by the decision to sell Corporation B's assets, have raised objections to the sale of Corporation C, and will likely pursue litigation in an attempt to void the sale. The real estate being developed which was the primary asset of Corporation B, was conveyed from Corporation B to Corporation C by warranty deed. The deed was signed by an authorized representative of Corporation B. The two disgruntled individuals have voiced opposition to the representation of Corporation C by the inquiring attorneys."; holding that the lawyer may represent the corporation adverse to constituents; "[T]he adversity in this dispute runs between two dissenting constituents of Corporation B and the remaining two constituents, and also between the two individual dissenters and Corporation C.").

In a more complicated scenario, applying the general rule also generally permits lawyers to represent a closely held company and some of its owners against other

owners.

• Havasu Lakeshore Invs., LLC v. Fleming, 158 Cal. Rptr. 3d 311, 314, 319, 321 (Cal. Ct. App. 2013) (holding that a lawyer could represent a limited liability company and its managing members in a litigation against two members, each of whom owned approximately ten percent of the LLC interest; "The trial court disqualified a law firm from simultaneously

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representing a limited liability company, its managing member (a partnership), and the person who managed that partnership (who was not himself a member of the company) in a lawsuit against two of the company's minority members. The court found that the interests of the company and the nonmember individual potentially conflicted, and concluded the law firm could not jointly represent the company and the nonmember individual against the company's minority members. The court based its ruling on rule 3-310(C) of the State Bar Rules of Professional Conduct and Gong v. RFG Oil, Inc. (2008) 166 Cal.App.4th 209, 214-216 [82 Cal. Rptr. 3d 416] (Gong), both of which concern an attorney's duty of loyalty to simultaneously represented clients. Because no actual conflict of interest existed between the company and the individual who managed the company's managing member, and there was no reasonable likelihood such a conflict would arise, we reverse the court's ruling." (footnote omitted); "With respect to the cross-complaint, there is no conflict; the LLC's interests and Peloquin's are clearly allied. The LLC and the other cross-complainants seek to recover the LLC's property and to restore value to the LLC. Fleming Jr., in his respondent's brief, agrees these are the LLC's litigation goals. These goals are beneficial to every member of the LLC, including the Flemings in their status as members of the LLC, and to Peloquin, in his status as a partner and principal in the LLC's other members."; "Fleming Jr. cites no authority for the proposition that an attorney may never jointly represent an entity and its management against a nonmanaging minority member.").

A 2013 District of Massachusetts decision extensively analyzed this issue, noting courts' differing approaches -- but ultimately applying the general rule to a lawyer's representation of a closely held corporation and some of its shareholders against other shareholders.

• Records v. Geils Unlimited Research, LLC, Civ. A. No. 12-11419-FDS, 2013 U.S. Dist. LEXIS 106375, at *8-9, *11-12, *12, *16, *16 n.5, *21 (D. Mass. July 30, 2013) (holding that even in the context of a close corporation, a lawyer can represent the corporation and some shareholders in litigation with other shareholders; "The First Circuit has held that '[a]bsent some evidence of true necessity, [the court] will not permit a meritorious disqualification motion to be denied in the interest of expediency unless it can be shown that the movant strategically sought disqualification in an effort to advance some improper purpose.' Fiandaca, 827 F.2d at 830-831 [Fiandaca v. Cunningham, 827 F.2d 825 (1st Cir. 1987)]. Furthermore, the great majority of cases where motions to disqualify as untimely involved motions filed on the eve of trial. . . . Here, the litigation is still in its relative infancy. Accordingly, the Court will not deny the motion to disqualify attorney Butters and his firm is untimely.";

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"Plaintiffs seem to suggest that an attorney can never represent a corporation in a claim brought by a shareholder of that corporation. But it is well-settled that '[a] lawyer retained by a corporation represents the corporate entity, not its shareholders, employees, or directors.'. . . Indeed, if plaintiffs' theory were correct -- and counsel for a corporation necessarily must represent the interests of all the shareholders -- it would lead to an absurd result: no corporation could ever retain counsel in a suit brought by a shareholder. That, obviously, cannot be the rule." (emphases added); "There may be circumstances, particularly involving close corporations, where an attorney for a corporation might in fact be precluded from representing that corporation in a claim brought by a minority shareholder. T&A may be such a close corporation, and individual defendants Justman, Klein, Salwitz, and Blankfield together appear to represent a majority of shareholder interests."; "[P]laintiffs have cited to no authority holding that counsel here owes a fiduciary duty to the minority shareholders, or that such a duty would survive the filing of a claim against the corporation by a minority shareholder. If there are facts in this case that might bear on the creation of such a duty, they have not been made part of the record. Under the circumstances, it does not appear that Butters owes a fiduciary duty to Geils, and, even if such a duty once existed, it may have terminated when his interests become [sic] adverse to the corporation. Accordingly, the Court will not disqualify attorney Butters on that basis." (footnote omitted) (emphasis added); "In Bovee v. Gravel, 174 Vt. 486, 811 A.2d 137 (2002), the Vermont Supreme Court addressed the issue of whether an attorney for a close corporation owes a separate duty of care to individual shareholders. The court surveyed opinions from a number of jurisdictions across the country and concluded as follows: 'Although a few courts have evinced a willingness to recognize an attorney's duty to care to the shareholders of a closely held corporation, these decisions are generally based on circumstances demonstrating a relationship between the attorney and a small number of shareholders approaching that of privity. See, e.g., United States v. Edwards, 39 F. Supp. 2d 716, 731-32 (M.D. La. 1999) ("The issue of attorney-client relationship becomes more complicated in the case of a small closely held corporation with only a few shareholders or directors. In such cases, the line between individual and corporate representation can become blurred."); Rosman v. Shapiro, 653 F. Supp. 1441, 1445 (S.D.N.Y. 1987) (counsel for closely-held corporation consisting of two fifty-percent shareholders represented both corporate entity and individual shareholders).'"; "'Many courts, however, have refused to recognize a duty to nonclient shareholders even in such closely held corporations. See Skarbrevik v. Cohen, England & Whitfield, 231 Cal. App. 3d 692, 282 Cal. Rptr. 627, 634-36 (Ct. App. 1991) (counsel for close corporation owed no duty to nonclient shareholder); Brennan and Ruffner, 640 So. 2d 143, 145-46 (Fla. Dist. Ct. App. 1994) ('where an attorney represents a closely held corporation, the attorney is not in privity with and therefore owes no separate duty of diligence and care to an individual shareholder'); Felty v. Hartweg, 169 Ill.

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App. 3d 406, 523 N.E.2d 555, 557, 119 Ill. Dec. 799 (Ill. App. Ct. 1988) (declining to recognize corporate attorney's duty to shareholders, court observed that 'even in closely held corporations, minority shareholders often have conflicting interests with the corporation')." (citation omitted)); "Rule 3.7 provides that a lawyer who is a necessary witness 'shall not act as an advocate at trial.' (emphasis added). Therefore, it is not necessary to disqualify attorney Butters at this juncture. Indeed, plaintiffs . . . have yet to explain the testimony they intend to elicit from Butters. If plaintiffs in the future can meet their burden of showing that necessary testimony could not be acquired from another witness, it might then be appropriate to disqualify attorney Butters from serving as trial counsel. However, 'that future possibility provides no basis for disqualifying [Butters] from continuing to represent [defendants] in pre-trial activities.'" (citation omitted) (emphases added)).

Courts applying the general "default" rule also usually conclude that a closely held corporation's owner cannot file a malpractice action against the corporation's lawyer.

• Kelly Knaub, McNees Wallace Freed From Malpractice Suit Over Stock Sale, Law360, Mar. 11, 2014 ("The Pennsylvania Superior Court upheld a trial court decision letting law firm McNees Wallace & Nurick LLC off the hook in a case accusing the firm of committing legal malpractice in connection with All- Staffing Inc. (ASI) co-owner Alfonso Sebia's sale of stock during an acquisition of the company."; "In an opinion penned by Superior Court Judge Patricia H. Jenkins, the three-judge panel agreed with the Court of Common Pleas' determination that McNees Wallace did not have an attorney-client relationship with Sebia and his wife Pamela, also a plaintiff, saying the firm had only represented ASI. Alfonso Sebia owned 50 percent of the company's stock, while his partner, Stan Costello, owned the other half." (emphasis added); "'Viewed in the light most favorable to the Sebias, the evidence fails to establish that it was reasonable for them to believe McNees was representing them,' the opinion says."; "ASI, which Sebia and Costello formed in 1992, was a privately held professional employment organization that provided payroll, human resources and workers' compensation insurance services to its clients. Things went awry in 2007 after California-based Dalrada Corporation purchased ASI and its assets, including ASI stock, which were foreclosed on later that year by one of Dalrada's lenders. The Sebias -- who had carved out employment agreements during the acquisition -- were also fired."; "The Sebias sued McNees Wallace for legal malpractice, but the appeals court affirmed the trial court's decision, saying the firm had only represented ASI and not the Sebias."; "The appeals court said that ASI -- not the Sebias -- signed an engagement letter with McNees Wallace, which explicitly identified the firm's client as the corporation, not an individual

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shareholder. According to the court, the firm had included the following line in the letter: 'We always recommend that individual owners consider obtaining separate legal counsel. We do so here as well.'" (emphasis added); "Judge Jenkins wrote in the opinion that the Sebias never had face-to-face meetings with the firm, never received bills from it, never paid the firm's bills or complained about its services. The Sebias did not ask the firm to perform due diligence during the Dalrada transaction, invite the firm to meetings with ASI's accountants or ask the firm for its opinion about the original or revised stock purchase agreements with Dalrada, according to the appeals court." (emphases added)).

• Kurre v. Greenbaum Rowe Smith Ravin Davis & Himmel, LLP, Dkt. No. A- 5323-07T1, 2010 N.J. Super. Unpub. LEXIS 832, at *2-3, *8-9 (N.J. Super. Ct. App. Div. Apr. 16, 2010) (holding that a shareholder could not file a derivative action against a closely held corporation's lawyer; "On August 3, 2001, Labriola Motors retained Greenbaum to represent it in connection with a proposed sale to Pine Belt Automotive, Inc. The retainer letter stated that Greenbaum would act as 'counsel to the Company' and expressly advised plaintiffs and Joseph, with whom Greenbaum had a prior relationship, that because each of their 'interests and concerns as shareholders of the Company differ in connection with the proposed transaction,' each 'should retain independent legal counsel and/or accounting or financial advisors to represent [them] in connection with [their] review, negotiation and execution of the contract documents.' Plaintiffs signed the retainer agreement and acknowledged 'that (i) this firm will represent only the Company in connection with the proposed transaction, and (ii) this firm has advised you of your right to obtain independent legal counsel.'" (emphasis added); "The record as a whole precludes consideration of a legitimate factual dispute concerning Greenbaum's representation of plaintiff's personally at any relevant time, or of any duty owed to them with respect to issues concerning the dealership. . . . Nor can they reasonably contend that they legitimately believed that Greenbaum represented them personally in the dealership's dealings with Nissan." (emphasis added)).

• Bovee v. Gravel, 811 A.2d 137, 141 (Vt. 2002) (holding that a shareholder cannot directly sue the corporation's lawyer for malpractice; "Courts have generally refused . . . to recognize an exception to the privity requirement for shareholders' claims against a corporate attorney."; "Although a few courts have evinced a willingness to recognize an attorney's duty of care to the shareholders of a closely held corporation, these decisions are generally based on circumstances demonstrating a relationship between the attorney and a small number of shareholders approaching that of privity." (emphasis added); "Many courts, however, have refused to recognize a duty to nonclient shareholders even in such closely held corporations. See Skarbrevik v. Cohen, England & Whitfield, 231 Cal. App. 3d 692, 282 Cal. Rptr. 627, 634-

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36 (Ct. App. 1991) (counsel for close corporations owed no duty to nonclient shareholder); Brennan v. Ruffner, 640 So. 2d 143, 145-46 (Fla. Dist. Ct. App. 1994) ('where an attorney represents a closely held corporation, the attorney is not in privity with and therefore owes no separate duty of diligence and care to an individual shareholder'); Felty v. Hartweg, 169 Ill. App. 3d 406, 523 N.E.2d 555, 557, 119 Ill. Dec. 799 (Ill. App. Ct. 1988) (declining to recognize corporate attorney's duty to shareholders, court observed that 'even in closely held corporations, minority shareholders often have conflicting interests with the corporation.')." (emphasis added)).

• Brennan v. Ruffner, 640 So. 2d 143, 145-46, 146 (Fla. Dist. Ct. App. 1994) (holding that a shareholder controlling one-third of a company's stock cannot directly sue the company's lawyer; "Dr. Brennan argues that a separate duty to him as a shareholder arose by virtue of the lawyer's representation of the closely held corporation. Although never squarely decided in this state, we hold that where an attorney represents a closely held corporation, the attorney is not in privity with and therefore owes no separate duty of diligence and care to an individual shareholder absent special circumstances or an agreement to also represent the shareholder individually. While there is no specific ethical prohibition in Florida against dual representation of the corporation and the shareholder if the attorney is convinced that a conflict does not exist, an attorney representing a corporation does not become the attorney for the individual stockholders merely because the attorney's actions on behalf of the corporation may also benefit the stockholders. The duty of an attorney for the corporation is first and foremost to the corporation, even though legal advice rendered to the corporation may affect the shareholders. Cases in other jurisdictions have similarly held." (footnote omitted) (emphasis added); "[T]here are no facts to support Dr. Brennan's assertion that the primary intent of the corporation in hiring the attorney to draft the shareholder's agreement was to directly benefit Dr. Brennan individually. Dr. Brennan admits that there was an inherent conflict of interest between the rights of the individual shareholder and the corporation. This alone expressly undercuts a third party beneficiary claim. . . . A third party beneficiary theory of recovery has been rejected in other jurisdictions in similar circumstances on the basis that the individual shareholder cannot be an intended third party beneficiary of a shareholder's agreement because the interests of the corporation and the minority shareholder are potentially in opposition." (emphasis added)).

• Skarbrevik v. Cohen, England & Whitfield, 282 Cal. Rptr. 627, 634-35, 636, 637 (Cal. Ct. App. 1991) (holding that plaintiff officer, director, and 25 percent shareholder cannot directly sue the company's lawyer; "An attorney representing a corporation does not become the representative of its stockholders merely because the attorney's actions on behalf of the corporation also benefit the stockholders; as attorney for the corporation,

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counsel's first duty is to the corporation. . . . Corporate counsel should, of course, refrain from taking part in any controversies or factional differences among shareholders as to control of the corporation, so that he or she can advise the corporation without bias or prejudice. . . . Even where counsel for a closely held corporation treats the interests of the majority shareholders and the corporation interchangeably, it is the attorney-client relationship with the corporation that is paramount for purposes of upholding the attorney-client privilege against a minority shareholder's challenge. . . . These cases make clear that corporate counsel's direct duty is to the client corporation, not to the shareholders individually, even though the legal advice rendered to the corporation may affect the shareholders." (emphases added); "Plaintiff in this case did not have close interaction, or any interaction at all, with defendant attorneys during the time period in which the legal services sued upon were rendered. The evidence at trial was that after the July 13, 1983, meeting, plaintiff was told by the other shareholders that defendant Comis would prepare the documents to effect the buy out of his shares, and that in August 1983, when plaintiff asked Erlich [one of the other three 25% shareholders] if the papers were ready, Erlich told plaintiff that because of their attorney's advice, he and the two other shareholders had decided not to pay him for his shares, and that no contract would be forthcoming."; "There was no contact between plaintiff and defendant Comis regarding the proposed buy out; the initial instructions regarding the drafting of buy out documents were given to Comis by Erlich. Nor was there any basis for plaintiff to place faith, confidence or trust in Comis to protect his interests in regard to this rift among the shareholders, particularly after he was told that it was on the basis of their attorney's advice that the other three shareholders had decided not to pay him for his shares. All the wrongful acts complained of were subsequent to the date he received that information, and he was completely unaware of any of those acts until after he brought this action."; "Applying these principles to the case before us, we conclude that plaintiff had no attorney-client relationship with defendant attorneys, he was not an intended beneficiary of the attorney-client relationship, and certainly had no reason to believe he was intended to be benefited by that relationship, particularly after he was told by Erlich that based on 'their attorney's counsel,' the majority shareholders would not pay him for his shares. The evidence at trial demonstrates that plaintiff was at that time a potential adverse party whose interests could not be, and were not, represented by his adversaries' chosen counsel, whose duty of loyalty was to his own clients. . . . The fact that defendant Comis could have foreseen the adverse consequences of his advice and its impact on plaintiff is not sufficient justification for fixing liability on him to a nonclient shareholder under these circumstances." (emphasis added); "Defendants owed no professional duty of care to plaintiff, and in the absence of duty, could not be held liable for professional negligence." (emphases added)).

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A 2009 Western District of New York case applied the general rule in denying a closely held company's owners access to the company lawyer's files.

• MacKenzie-Childs LLC v. MacKenzie-Childs, 262 F.R.D. 241, 246, 248, 249, 250, 251, 252, 252-53, 253. 254, 255 (W.D.N.Y. 2009) (addressing privilege issues in a trademark case; explaining that a lawyer had represented a closely held business, which had eventually declared bankruptcy, with the assets sold to a number of successors; analyzing the ability of the former sole owners of the company to obtain privileged documents from the lawyer -- thus raising the issue of whether the lawyer had represented them individually or their closely held company; explaining the co-owners' position that the lawyer represented them; "Victoria and Richard argue that Salai [lawyer] 'act[ed] as their personal attorney and not as attorney for their wholly owned company.'. . . Because they were fifty percent shareholders of a closely-held corporation, they continue, they had 'every right' to assume that Salai was acting as their personal attorney when he provided trademark and copyright advice. . . . In support of their position, they also offer copies of nearly thirty supplementary copyright registrations that Salai submitted on January 16, 1997, correcting earlier registrations for works previously identified as works for hire. . . . Salai signed each of the filings and certified that he was the 'duly authorized agent of Victoria and Richard [co-owners] MacKenzie-Childs.'" (internal citation omitted); explaining the basic rule involving an asset sale; "Where one corporation merely sells its assets to another, however, the privilege does not pass to the acquiring corporation unless (1) the asset transfer was also accompanied by a transfer of control of the business and (2) management of the acquiring corporation continues the business of the selling of the corporation."; also explaining how the joint representation and common interest doctrine apply in a corporate setting; "The concept of joint representation and the related common interest doctrine are particularly complex in the corporate setting. . . . Under this rule, courts presume that the corporation owns the privilege -- rather than the individual corporate representatives, or the individuals and the corporation jointly -- and the individuals bear the burden of rebutting the presumption."; "Despite this 'default' rule, courts have been willing to recognize that an individual corporate representative may assert an individual attorney-client privilege in communications with corporate counsel provided that certain requirements are met. . . . Some courts, such as the First, Third and Tenth Circuits, apply the following five-part test enunciated in Bevill to determine whether an individual has demonstrated a personal privilege in communications with corporate counsel."; "Thus, although this authority permits an individual to assert a personal privilege in certain communications with corporate counsel, it does not stand for the proposition that an individual and a corporation may enjoy a joint privilege in the same, non-segregable communication with counsel by a corporate representative in both his representative and

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individual capacity."; "Although the Second Circuit has acknowledged the Bevill test, it has not clearly adopted it. . . . It has made it clear, however, that whether Bevill is or is not applied, a prerequisite to assertion of a personal privilege by a corporate representative is proof that the employee 'ma[de] it clear to corporate counsel that he [sought] legal advice on personal matters.'" (citation omitted); noting the lawyer's testimony; "He testified that he always believed that he was acting as counsel to the corporation, and not as counsel to Richard and Victoria, individually. . . . He further testified that he never spoke to either of them about any matters, but instead communicated with other corporate employees, some of whom he identified in his testimony. . . . Invoices for his services were paid by the corporation, and not by Victoria and Richard personally. . . . On this record, defendants' contention that Salai never provided legal advice or services to the corporation strains credulity and cannot be accepted."; holding that the privilege passed with the assets sole to various successors; "I find that MacKenzie-Childs II purchased substantially all of the assets then-owned and the business then-operated by MacKenzie-Childs I and thereafter continued the business in which MacKenzie-Childs I had been engaged. . . . Thus, I conclude that the attorney-client privilege passed from MacKenzie-Childs I to MacKenzie Childs II."; "I likewise conclude that the privilege passed again in 2008, this time from MacKenzie-Childs II to MacKenzie-Childs III. The record demonstrates that MacKenzie-Childs III purchased substantially all of the assets of MacKenzie- Childs II, including its intellectual property, and has continued the business of MacKenzie-Childs II and III. . . . Considering these facts, plaintiffs have the authority to assert -- as they did in Salai's deposition -- the attorney-client privilege to protect confidential communications made between representatives of MacKenzie-Childs I and Salai, as counsel to the corporation."; rejecting the co-owners' argument that they reasonably believe they were the lawyer's client; "[T]he fact that an attorney represents a corporation does not make that attorney counsel to the corporation's officers, directors, employees or shareholders." (emphasis added); "[W]hether Richard and Victoria believed that Salai was acting as their individual attorney and whether that belief was reasonable are simply irrelevant to the pending privilege doctrine." (emphasis added); "Rather, whether Richard and Victoria may establish a personal privilege in communications with Salai depends on proof that they sought legal advice from Salai about personal matters and that they made it clear to him that they were seeking advice in their individual, not representative, capacities." (emphasis added); "First, it does not allege that Victoria or Richard ever actually communicated directly with Salai, as opposed to communicating through other corporate representatives. Defendants have cited no authority, and the Court is unaware of any, to support the novel proposition that a privileged relationship may be created between an individual and a corporate attorney with whom the individual has never spoken nor directly communicated." (emphasis added); "Moreover, [there is] the dearth of any evidence showing that Victoria or Richard ever

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personally paid for Salai's legal advice."; "In sum, defendants' reliance on their 'reasonable belief' that Salai represented them personally because they were the sole shareholders and ultimate decisionmakers of a closely-held corporation is insufficient to establish a personal attorney-client privilege. Because they cannot even establish that they ever communicated directly with Salai, let alone that they made clear to him that they were seeking legal advice in their individual capacities, their contention that they possess a privilege capable of being waived must be rejected."; also finding that the lawyer must honor the current privilege owner's direction about documents; "Consistent with my determination that any attorney-client privilege belongs to the companies, and not to Victoria and Richard personally or jointly with the companies, Salai and HSE [lawyer's present firm] must respect plaintiffs' assertion of privilege concerning the requested documents." (emphasis added)).

Minority View: A Corporation's Lawyer Also Owes Duties to its Owners

To be sure, some jurisdictions take a different approach.

For instance, a District of Columbia ethics rule comment explains that

if the organization client is a corporation that is wholly owned by a single individual, in most cases for purposes of applying this rule, that client should be deemed to be the alter ego of its sole stockholder.

District of Columbia Rule 1.7 cmt. [23].

A Restatement provision similarly explains that lawyers representing corporations might owe duties to some of the corporation's constituents.

• Restatement (Third) of Law Governing Lawyers § 121 cmt. d (2000) ("For purposes of identifying conflicts of interest, a lawyer's client is ordinarily the person or entity that consents to the formation of the client-lawyer relationship . . . . For example, when a lawyer is retained by Corporation A, Corporation A is ordinarily the lawyer's client; neither individual officers of Corporation A nor other corporations in which Corporation A has an ownership interest, that hold an ownership interest in Corporation A, or in which a major shareholder in Corporation A has an ownership interest, are thereby considered to be the lawyer's client."; "In some situations, however, the financial or personal relationship between the lawyer's client and other persons or entities might be such that the lawyer's obligations to the client will extend to those other persons or entities as well. That will be true, for example, where financial loss or benefit to the nonclient person or entity will have a direct, adverse impact on the client." (emphasis added)).

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Some courts take what can be fairly described as the minority position, pointing to closely held corporations' lawyers' duty to corporate constituents.

• M'Guinness v. Johnson, 196 Cal. Rptr. 3d 662, 675, 677 (Cal. Ct. App. 2015) (holding that a law firm which represented a corporation owned equally by three shareholders could not represent one of the shareholders in counterclaims against the third shareholder and the company; pointing to the law firm's retention of TLC's (the corporation) funds in its escrow account; "The Firm's having consistently sent invoices to TLC between July 2006 and October 2012 belies Johnson's claim the Firm had 'concluded its representation of TLC in early March 2012.' In fact, there were at least seven months of billings (included the March 25, 2012 invoice) sent to TLC after the Firm's representation of TLC had, according to Johnson, 'concluded' in early March 2012."; concluding that the law firm continued to represent TLC; "The Law Firm's actions controlling and limiting access by two of TLC's shareholders, officers, and directors to the aforementioned records suggest the Firm continued to act as TLC's corporate counsel as late as April 2013.").

• Rosman v. ZVI Shapiro, 653 F. Supp. 1441, 1445 (S.D.N.Y. 1987) (finding that the half-owner of a corporation could reasonably have thought that the same lawyer representing the company also represented him, and therefore disqualifying that lawyer from representing the company and the company's other owner; "Rosman and Shapiro jointly consulted Y&Y [Law firm] for legal advice concerning Filtomat's [defendant] contractual relationship with Filtration [defendant]. Moreover, it is clear that Y&Y now represents Shapiro against Rosman in two actions before the Court and that both actions focus on the identical issues discussed during the prior consultations. Based on these facts, Rosman seeks to disqualify Y&Y pursuant to Canons 4 and 9 of ABA Code of Professional Responsibility."; "It is clear that Rosman reasonably believed that Zisman [Y&Y lawyer] was representing him. Although, in the ordinary corporate situation, corporate counsel does not necessarily become counsel for the corporation's shareholders and directors . . ., where, as here, the corporation is a close corporation consisting of only two shareholders with equal interests in the corporation, it is indeed reasonable for each shareholder to believe that the corporate counsel is in effect his own individual attorney." (emphasis added); "This is especially true in this case because both Rosman's uncontradicted affidavit . . . and the shareholder agreement creating Filtomat . . ., demonstrate that both Rosman and Shapiro treated Filtomat as if it were a partnership rather than a corporation. In short, it would exalt form over substance to conclude that Y&Y only represented Filtomat, solely because Rosman and Shapiro chose to deal with Filtration through a corporate entity." (emphasis added)).

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• United States v. Edwards, 39 F. Supp. 2d 716, 731-32 (M.D. La. 1999) ("As a general rule, an attorney for a corporation represents the corporation, and not its shareholders. The issue of attorney-client relationship becomes more complicated in the case of a small closely-held corporation with only a few shareholders or directors. In such cases, the line between individual and corporate representation can become blurred. The determination whether the attorney represented the individual of the small closely-held corporation is fact-intensive and must be considered on a case-by-case basis. The court in Rosman v. Shapiro [653 F. Supp. 1441, 1445 (S.D.N.Y. 1987)] noted that although corporate counsel does not ordinarily become counsel for the shareholders and directors, in a closely-held corporation consisting of only two shareholders, 'it is indeed reasonable for each shareholder to believe that the corporate counsel is in effect his own individual attorney.' The court in Sackley v. Southeast Energy Group, Ltd. [No. 83 C 4615, 1987 U.S. Dist. LEXIS 10279, at *9-10 (N.D. Ill. June 19, 1987)] set forth a number of factors which could be considered: (1) 'whether the attorney ever represented the shareholder in individual matters'; (2) whether the attorneys' services were billed to and paid by the corporation'; (3) 'whether the shareholders treat the corporation as a corporation or as a partnership'; and (4) 'whether the shareholder could reasonably have believed that the attorney was acting as his individual attorney rather than as the corporation's attorney.'" (footnotes omitted) (emphasis added)).

A number of cases following this line essentially equate lawyers' representation of a closely held corporation with that of its owners, or warn lawyers of that risk.

• Eternal Pres. Assocs., LLC v. Accidental Mummies Touring Co., 759 F. Supp. 2d 887, 888-89, 893-94, 894 (E.D. Mich. 2011) (denying a motion to disqualify Clark Hill from representing both an LLC and an entity that controls the LLC's managing member; explaining that the LLC sued its half-owner, and that Clark Hill represented both the LLC and the other half-owner; "The Court finds that a conflict certainly exists; but the conflict is between Wolf [half owner of the LLC represented by Clark Hill] and DSC [entity controlling the managing member of the LLC] over who should control the litigation against AMTC [LLC represented by Clark Hill, and plaintiff in suing half-owner Wolf]. Disqualifying Clark Hill would do little to resolve that conflict, and the Court finds it unnecessary to do so under the Michigan Rules of Professional Conduct. Clark Hill's loyalties are not divided, since the firm is doing the bidding of AMTC's managing member. That is not to say, however, that Clark Hill may not have a fiduciary duty to Wolf as an equal member of AMTC. For now, however, the Court concludes that Clark Hill may continue to represent AMTC in this litigation, albeit at its peril. The motion to disqualify, therefore, will be denied."; "[A]s long as DSC controls AMTC, Clark Hill will not face that conflict. Clark Hill must follow the instruction of its client, and it must give

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advice unfettered by conflicting loyalty to another client. But it is unlikely that AMTC would consider the possibility of a suit against DSC while an entity controlled by DSC determines AMTC's litigation decisions. As long as DSC-controlled interests are in a position to decide what is in AMTC's best interests, Clark Hill's simultaneous representation of both AMTC and DSC will not violate Michigan Rule of Professional Conduct 1.7." (emphasis added); "It is important to note that Wolf's claim of conflict of interest is not based on Clark Hill's possession of confidential information . . . . Instead, it is based on the idea that Clark Hill, taking instruction from the managing member of AMTC, Marcon Eekstein (which is manages [sic] by Eekstein's Workshop, L.L.C., in turn wholly owned by DSC), will not pursue a litigation strategy that Wolf would like and DSC may not. That cannot constitute a violation of Michigan Rule of Professional Conduct 1.7(b); if it did, no lawyer could represent AMTC in the present litigation, regardless of which of the fifty percent members controlled AMTC. Disputes between constituent members over control of an entity should not be resolved under the guise of an attorney conflict of interest." (emphasis added); "That is not to say that Wolf may not have recourse against Clark Hill directly. An attorney who represents a closely held corporation and a controlling shareholder may also have a fiduciary [duty] to the other shareholder(s)." (emphases added)).

• Classic Ink, Inc. v. Tampa Bay Rowdies, Civ. A. No. 3:09-CV-784-L, 2010 U.S. Dist. LEXIS 75220, at *6-7, *7-8 (N.D. Tex. July 23, 2010) (disqualifying a lawyer from adversity to an individual, based on the lawyer's previous representation of the entity solely owned by the individual; "Anderson was the sole shareholder, employee, and president of the Entity when it was formed. The Entity never grew significantly in size and eventually came to include a three-person Board of Directors, consisting of Anderson, his wife Carolyn Anderson, and fellow shareholder Mark Scott. At all times, the Entity fit the profile classification of a closely-held corporation, and it [sic] status as a closely-held corporation is undisputed by the parties." (footnote omitted); "The record and hearing testimony make clear that Anderson sought Hemingway [lawyer] because he knew Hemingway, trusted him, and needed legal assistance to help carry on his Internet sales activities. Although Anderson ultimately gave Hemingway approval to incorporate the Entity, it is apparent that incorporating the Entity was Hemingway's legal opinion and advice, which Anderson admittedly accepted and authorized, but not originally Anderson's idea. Hemingway testified that all of the legal work he performed was at the behest of his 'client,' referring to Anderson. That Hemingway, on the one hand, would call Anderson his client and, on the other hand, maintain the position that he never had an attorney-client relationship with Anderson does not square. As it is uncontroverted that the Entity did not exist at the time Anderson first met with and retained Hemingway, the court determines that, at best, Hemingway has demonstrated that he jointly represented Anderson and the Entity. Moreover, given their prior acquaintanceship and

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the absence of any documentation or contract narrowing Hemingway's representation solely to the Entity, it was reasonable for Anderson -- as well as an objective third-party observer -- to assume that Hemingway represented him and not just the Entity. Accordingly, the court concludes that Anderson has satisfied the first element of the 'substantial relationship' test. An actual attorney-client relationship existed between Anderson and Hemingway." (emphases added)).

Several ethics opinions have warned lawyers who represent closely held corporations that they must remain neutral in the owners' fight over control of the corporation.

• Alaska LEO 2012-3 (10/26/12) ("When conflict issues arise in the context of a small closely held business entity, for a number of reasons they can be very difficult to resolve. In a small, closely held organization, unlike a larger organization, each of the owners may have a direct and intimate responsibility for the operation of the business. The attorney for the organization may have dealt directly with each owner on a regular basis on many matters, or even with respect to the particular legal matter at issue. The constituent may have used the legal services of the attorney on unrelated matters or in circumstances in which it was reasonable for the constituent to conclude that the attorney was acting as the constituent's attorney. When owners in a small closely held organization clash, there is a high likelihood that the attorney will previously have received information or given advice to all concerned that is relevant to the dispute. Finally, when the owners have equal or nearly equal ownership rights and responsibilities, and where each may have been directly involved in giving instructions to the attorney in the past, the attorney may find that it is hard to know who speaks for the business entity and thus who gives direction on behalf of the 'client.' Although ARPC 1.13(g) allows dual representation if the organization consents, it may be impossible to find an 'appropriate individual' or shareholder who is genuinely disinterested and who can thus approval dual representation." (footnote omitted) (emphasis added); "First, when an owner of a closely held organization, acting in a capacity as a representative or 'constituent' of the organization, consults with the organization's attorney, receives legal advice or provides confidential information no attorney client relationship is formed with the constituent. No conflict of interest arises if the interests of the constituent and the organization later diverge."; "Second, and conversely, advice given by counsel to a constituent regarding the constituent's individual legal issues (including, for example, legal advice regarding the constituent's rights or claims against the organization) may create either an actual or an implied attorney client relationship that gives rise to an impermissible conflict that precludes the attorney from representing the corporation on an issue adverse to the

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constituent's interests. Finally, to the extent that it is not possible to reconcile the conflict under the Rules of Professional Conduct, or it is not possible to determine who can make decisions on behalf of the client, the attorney must withdraw, rather than express a preference for one client over another." (footnote omitted); "The attorney for a closely held business entity can and should make clear that the attorney represents the organization, and not the individual owners. The attorney can and should make the implications of this clear as well. Any communications from one owner to the attorney regarding the affairs of the business are not likely to be protected from the other owner. The attorney may not favor the interests of one owner over another during the course of representing the business. If a conflict should arise among the owners the attorney may be required to withdraw from representing any party if the owners cannot agree on a waiver or some method of resolving the conflict." (footnotes omitted) (emphases added)).

• Vermont LEO 2009-4 (2009) (holding that a law firm could represent a client adverse to the principal of a corporation which the law firm had previously represented, although the law firm could not use information obtained from the principal; explaining the situation: "The requesting attorney's firm represents A and has done so for a number of years. One matter handled by the requesting attorney was A's purchase of a parcel of land that adjoins lands owned by a corporation in which B is a principal. The firm has never represented the landowner corporation but has formed an LLC for B and has performed collection work for a different corporation in which B is also a principal. Both files are now closed. There are no open files in which either B or any of his business entities are represented by the firm."; "Recently, on A's behalf, the firm sent a letter to the landowner corporation disputing the landowner corporation's claimed right of access onto A's adjoining property. In response to that letter, B has claimed a conflict of interest and requested that the firm refrain from representing A in connection with the dispute."; "In B's claim of conflict he asserts that the requesting attorney's firm's representation of A 'creates at least the appearance of conflict'. He also expresses a concern that his interest may have been compromised by dual loyalties. He goes on to claim that the firm is privy to financial and legal concerns that would compromise him in his negotiations with A. The firm has no active case files for B, and no retainer arrangement exists."; noting that the principal was never the law firm's client; "In the matter at hand, the firm has never actually represented the corporation which is the landowner. Rather, it has represented one of the principals of the landowner corporation in the formation of an LLC and it has performed collection work for an entirely different corporation. On these facts, we do not believe that the landowner corporation is even a former client. While this may seem an overly technical conclusion, clients should understand that they have separate legal identities from the entities they create so long as those entities have been properly formed and maintained." (emphasis added); warning the law firm that it could

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not use information obtained from the principal; "Having reached that conclusion, however[,] does not mean that the firm may use information obtained in the course of its work for B and B's other corporation in a manner which is adverse to B's interests. The firm has a continuing duty under Rule 1.9(c) to maintain the confidentiality of information obtained and not to use any information that it may have against B or B's interests." (emphasis added); "It is noted that Rule 1.9(c) does not preclude representation of A. Rather it prohibits the requesting attorney from using or revealing information relating to the former representation of B against B. Even if we (1) assume that the requesting attorney's firm has confidential or secret information obtained during the prior representations of B or B's other corporation; and (2) infer that the requesting attorney has access to all of the firm's files, Rule 1.9(c) does not preclude the requesting attorney from representing A. Rather it precludes the use of confidential or secret information to B's disadvantage." (emphases added)).

• California LEO 1999-153 (1999) (holding that a lawyer who had not previously represented a corporation or any of its executives may represent the company and one of its owners in an action brought by the other owner, as long as both of the lawyer's clients consent; articulating the issue as follows: "May a lawyer, who is not currently and has not previously represented a close corporation as to the subject of a dispute, be retained to represent the corporation and Shareholder A, who is authorized to retain and oversee counsel for the corporation, in a lawsuit brought by Shareholder B, the only other shareholder of the corporation, against both the corporation and Shareholder A?"; offering the following as a digest: "Under the particular facts presented, and subject to any limitations created by any fiduciary duties of Shareholder A, a lawyer may ethically represent both the corporation and Shareholder A in the lawsuit. To the extent a potential conflict of interest exists between Shareholder A and the corporation, the lawyer must obtain the informed written consent of both the corporation and Shareholder A before commencing the representation under rule 3-310(C)(1) of the California Rules of Professional Conduct. Under the facts presented, the corporation's consent to the joint representation may be obtained from Shareholder A. Consistent with rule 3-310(C)(1), this joint representation is permissible only for so long as the corporation and A do not have opposing interests in the lawsuit which the attorney would have a duty to advance simultaneously for each. Additionally, the lawyer must fulfill those duties to the corporation described in rule 3-600."; noting that "[a]t the time of the engagement, Attorney is not currently and has not previously represented Corporation as to the subject matter of the dispute. In addition, Attorney has not previously represented Corporation in any matter." (emphasis added); explaining California law on this issue; "California law has long recognized that when a lawyer acts as corporate counsel, the lawyer's first duty is to the corporation. (Meehan v. Hopps, supra, 144 Cal. App. 2d at p. 293.) As a result, courts

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have held that corporate counsel should retain from taking part in any controversies or factual differences among shareholders as to control of the corporation so that he or she can advise the corporation without prejudice or bias. (Metro-Goldwyn-Mayer, Inc. v. Tracinda Corp. (1995) 36 Cal. App. 4th 1832, 1842 [43 Cal. Rptr. 2d 327]; Skarbrevik v. Cohen, England & Whitfield, supra, 221 Cal. App. 3d at p. 704; Goldstein v. Lees (1975) 46 Cal. App. 3d 614, 622 [120 Cal. Rptr. 253].) This rule generally applies when a lawyer who has been representing a corporation is asked to represent one shareholder against another shareholder in a dispute over control of the corporation. (Woods v. Superior Court (1983) 149 Cal. App. 3d 931 [197 Cal. Rptr. 185] (lawyer who for years represented corporation owned by husband and wife could not represent one shareholder against the other in a marital dissolution action when the corporation was the primary focus of the dispute); Goldstein v. Lees, supra, 46 Cal. App. 3d 614 [former corporate counsel who had material confidential information could not represent one shareholder in a proxy fight for control of the corporation].)" (emphases added); "On the other hand, a lawyer is not prohibited from taking actions on behalf of the corporation that negatively impact the interests of a shareholder or other constituents. (See Skarbrevik v. Cohen, England & Whitfield, supra, 231 Cal. App. 3d 692 [holding that a lawyer for a corporation may render advice and draft documentation for the corporation that results in a dilution of a minority shareholder's interest in the company]; Meehan v. Hopps, supra, 144 Cal. App. 2d 284 [corporation's lawyer may bring an action on behalf of the corporation's receiver against a majority shareholder who had previously dominated the corporation].)"; noting that the analysis might change if the adverse half-owner gains control of the company or obtains access to confidential communications; "To the extent that B, or another person such as a receiver, obtains the ability to control the affairs of Corporation, an actual conflict of interest could arise. In that situation, Attorney could receive conflicting instructions from Corporation and A. Attorney could be called on to advance inconsistent positions or to pursue a claim by Corporation against A, or vice versa. Attorney could be required to disclose confidential communications with A in the course of the joint representation which A would not want disclosed. Both clients could make a demand on Attorney for the original file."; "Even if a change of control does not occur, a conflict of interest could arise if B, as a constituent of Corporation, has or obtains a right to learn the substance of confidential communications Attorney has with A in the course of the joint representation, which A does not want disclosed to B. These concerns exist not only during the representation, but after the representation as well. While B or some other person might not have the ability to learn the substance of A's confidential information while the joint representation of A or Corporation is pending, in some cases they may attain a position in the Corporation in the future that would entitle them to obtain such information from Attorney."; explaining that the individual half-owner represented by the lawyer may consent on behalf of the company; "Attorney

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may obtain Corporation's consent to the joint representation from A under the second of the two approaches set forth in the rule. Under the facts presented, A may consent to the joint representation for the Corporation because (1) A is the only other shareholder, and (2) as president of Corporation, A is authorized to retain counsel for the Corporation and oversee the representation of the Corporation by that counsel. These two facts taken together allow Attorney to ethically represent Corporation and A jointly with A's consent for both."; noting that "this opinion does not address a situation in which the lawyer seeking to represent Corporation and A has previously represented Corporation and in so doing has obtained confidential information that is material to the current dispute." (emphasis added); also noting that the lawyer may not assist the clients in violations of law that may harm the corporation (emphases added)).

• District of Columbia LEO 216 (1/15/91) ("The principle that a lawyer representing a corporation represents the entity and not its individual shareholders or other constituents applies even when the shareholders come into conflict with the entity. Courts have generally held, therefore, that a corporation's lawyer is not disqualified from representing the corporation in litigation against its constituents. . . . A different result may sometimes be required where the shareholders of a closely held corporation reasonably might have believed they had a personal lawyer-client relationship with the corporation's lawyer." (emphasis added); "[T]he corporation's lawyer may continue to take direction from A until the dispute over control of the corporation is resolved by the courts or the parties. If, however, the lawyer should become convinced that A's decisions are clearly in violation of A's own fiduciary duties to the corporation, the lawyer may be forced to seek guidance from the courts as to who is in control of the corporation, there being no higher authority within the corporation to whom the lawyer can turn. Throughout the representation, the lawyer must continue to recognize that the interests of the corporation must be paramount and that he must take care to remain neutral with respect to the disputes between the present shareholders, B and U, and between A and U." (emphases added)).

Conclusion

As in all contexts, lawyers working with closely held corporations should carefully

define the "client" or "clients" they represent. Of course, lawyers must also deal with

ethics and legal principles that might burden them with duties to non-clients. But they can minimize avoidable risks by making sure everyone who owns or manages a closely held corporation knows the client's or clients' identity.

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Even lawyers carefully documenting the clients' identity must avoid other missteps that can occur in a closely held corporate context.

Among other things, for example, lawyers disclaiming an attorney-client relationship with one or more of the corporation's owners might unwittingly make some filing or prepare an opinion letter or other document on behalf of that owner. Monitoring paralegals' or other nonlawyers' filings and correspondence might minimize this risk.

Lawyers should also carefully check any "off-the-shelf" forms that they or their staff might use in such settings.

Even though the majority "default" rule generally allows lawyers to represent a closely held corporation and one of its owners against another owner, careful lawyers often avoid such an arrangement. Among other things, a court judgment or even a settlement might hand control of the corporation over to the adverse co-owner. Lawyers obviously would face termination at that point, but they might not realize that the new owner now controls the lawyer's former joint client (the corporation). This normally would allow the corporation (now in the hands of a former adversary) to access the lawyer's entire file. This could be bad enough for the lawyer if the file includes communications between the lawyer and the corporate decision makers who were then in power but who have now lost control of the corporation. It could be even worse if the lawyer jointly represented the corporation and the other owner -- because most courts would give the corporate joint client access to communications between the lawyer and the other then-joint client (the owner).

All in all, lawyers should keep in mind ethics and legal principles that could cause them problems both in the short term and in the long term.

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Best Answer

The best answer to this hypothetical is MAYBE.

B 6/14

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Identifying the Client Within a Corporate Family: Outside Lawyers' Issues

Hypothetical 12

You have been asked to bring a lawsuit against a Dallas-based corporation. Although your law firm's computerized conflicts search does not reveal any problems, one of your partners just called to tell you that she is handling a small amount of labor work for one of the proposed defendant's sister corporations. Your law firm does not represent the parent. The sister corporations are in different businesses, but both rely on the parent's law department for legal advice.

May you represent your client in the lawsuit against the Dallas-based corporation (without its consent)?

(A) YES

(B) NO

MAYBE

Analysis

When representing a corporation, the entity is the client.1 However, it is unclear

whether all members of the corporate "family" are also clients for conflicts purposes.2

ABA Model Rules

The ABA Model Rules generally seem to allow a lawyer representing one

member of a corporate family to take matters adverse to another member of that family.

However, the Rules also mention circumstances in which such representation will be

impermissible -- thus depriving lawyers of certainty.

1 ABA Model Rule 1.13(a).

2 When this issue arises in the context of the attorney-client privilege, most courts have held that all members of the corporate family are within the scope of the privilege. See, e.g., Admiral Ins. Co. v. United States Dist. Court, 881 F.2d 1486, 1493 n.6 (9th Cir. 1989); United States v. AT&T, 86 F.R.D. 603, 616-17 (D.D.C. 1979); Weil Ceramics & Glass, Inc. v. Work, 110 F.R.D. 500, 503 (E.D.N.Y. 1986).

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A lawyer who represents a corporation or other organization does not, by virtue of that representation, necessarily represent any constituent or affiliated organization, such as a parent or subsidiary. See Rule 1.13(a). Thus, the lawyer for an organization is not barred from accepting representation adverse to an affiliate in an unrelated matter, unless the circumstances are such that the affiliate should also be considered a client of the lawyer, there is an understanding between the lawyer and the organizational client that the lawyer will avoid representation adverse to the client's affiliates, or the lawyer's obligations to either the organizational client or the new client are likely to limit materially the lawyer's representation of the other client.

ABA Model Rule 1.7 cmt. [34] (emphasis added).

The ABA has also issued a legal ethics opinion discussing this issue.3 In ABA

LEO 390 (1/25/95) the ABA rejected a per se determination that representation of one corporate affiliate and adversity to another automatically creates a conflict. The ABA indicated that the existence of a conflict depends on: the lawyer's and client's understanding of which corporate entities are clients; the client's expectations about an attorney-client relationship with the affiliated corporation; the facts of the representation

(such as whether the lawyer actually performs work for a corporate affiliate, reports to the general counsel of a parent when working for a subsidiary, etc.); the nature of the corporate affiliation (such as any alter ego relationships among corporate affiliates); and whether the lawyer has acquired any confidential information from the corporate affiliate. The ABA indicated that adversity to a corporation generally amounts only to

"indirect" adversity to an affiliated corporation, because the adversity only derivatively affects the affiliate.

3 ABA LEO 390 (1/25/95) ("A lawyer who represents a corporate client is not by that fact alone necessarily barred from a representation that is adverse to a corporate affiliate of that client in an unrelated matter. However, a lawyer may not accept such a representation without consent of the

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corporate client if the circumstances are such that the affiliate should also be considered a client of the lawyer; or if there is an understanding between the lawyer and the corporate client that the lawyer will avoid representations adverse to the client's corporate affiliates; or if the lawyer's obligations to either the corporate client or the new, adverse client, will materially limit the lawyer's representation of the other client. Even if the circumstances are such that client consent is not ethically required, as a matter of prudence and good practice a lawyer who contemplates undertaking a representation adverse to a corporate affiliate of a client will be well advised to discuss the matter with the client before undertaking the representation."; explaining that "[c]learly, the best solution to the problems that may arise by reason of clients' corporate affiliations is to have a clear understanding between lawyer and client, at the very start of the representation, as to which entity or entities in the corporate family are to be the lawyer's clients, or are to be so treated for conflicts purposes"; noting that "considerations of client relations will ordinarily dictate the lawyer's course of conduct" without addressing ethics issues; noting that "circumstance of only partial ownership . . . is a variable that might affect the result in a particular case," but does not fundamentally change the analysis; holding that "in the absence of a clear understanding otherwise, the better course is for a lawyer to obtain the corporate client's consent before the lawyer undertakes a representation adverse to its affiliate"; also noting that lawyers must follow whatever retainer contract they enter into with clients, but that "a client that has such an expectation [that its lawyer will not be adverse to its affiliate] has an obligation to keep the lawyer apprised of changes in the composition of the corporate family"; addressing various factors in determining the propriety of a lawyer taking matters adverse to the affiliate of a corporate client; "[T]he nature of the lawyer's dealings with affiliates of the corporate client may be such that they have become clients as well. This may be the case, for example, where the lawyer's work for the corporate parent -- say, on a stock issue or bank financing -- is intended to benefit all subsidiaries, and involves collecting confidential information from all of them. Even if the subject matter of the lawyer's representation of the corporate client does not involve the affiliate at all, however, the lawyer's relationship with the corporate affiliate may lead the affiliate reasonably to believe that it is a client of the lawyer. For example, the fact that a lawyer for a subsidiary was engaged by and reports to an officer or general counsel for its parent may support the inference that the corporate parent reasonably expects to be treated as a client. . . . A client-lawyer relationship with the affiliate may also arise because the affiliate imparted confidential information to the lawyer with the expectation that the lawyer would use it in representing the affiliate. . . . Additionally, even if the affiliate confiding information does not expect that the lawyer will be representing the affiliate, there may well be a reasonable view on the part of the client that the information was imparted in furtherance of the representation, creating an ethically binding obligation that the lawyer will not use the information against the interests of any member of the corporate family. Finally, the relationship of the corporate client to its affiliate may be such that the lawyer is required to regard the affiliate as his client. This would clearly be true where one corporation is the alter ego of the other. It is not necessary, however, for one corporation to be the alter ego of the other as a matter of law in order for both to be considered clients. A disregard of corporate formalities and/or a complete identity of managements and boards of directors could call for treating the two corporations as one. . . . The fact that the corporate client wholly owns, or is wholly owned by, its affiliate does not in itself make them alter egos. However, whole ownership may well entail not merely a shared legal department but a management so intertwined that all members of the corporate family effectively operate as a single entity; and in those circumstances representing one member of the family may effectively mean representing all others as well. Conversely, where two corporations are related only through stock ownership, the ownership is less than a controlling interest and the lawyer has had no dealing whatever with the affiliate, there will rarely be any reason to conclude that the affiliate is the lawyer's client"; also distinguishing between direct and indirect adversity; "The paradigm situation here is presented by a lawyer's bringing a lawsuit, unrelated in substance to the lawyer's representation of a corporate client, seeking substantial money damages against a wholly owned subsidiary of the client: if the suit is successful, this will affect adversely not only the subsidiary but the parent as well, in the sense that one of its assets is the equity in the subsidiary, and its consolidated financial statements may (unless the subsidiary has applicable insurance coverage) reflect the impact of material adverse judgments against the subsidiary"; explaining that a lawyer's representation that involves "attacking the conduct or credibility of the second client or seeking to compel resisted discovery from the client" is directly adverse, but that

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Finally, the ABA explained that even in the absence of a conflict lawyers might be prohibited from taking positions adverse to a corporate client's affiliate if their diligence or judgment on behalf of the corporate client might be adversely affected (if, for instance, the corporate client would "resent" the lawyer undertaking the representation).

As might be expected, the ABA advised lawyers to resolve any doubts in favor of withdrawal, and suggested that a lawyer should discuss matters with the existing client even if consent is not required.

Restatement

The Restatement also deals with this issue.

Whether a lawyer represents affiliated organizations as clients is a question of fact . . . . When a lawyer represents two or more organizations with some common ownership or membership, whether a conflict exists is determined primarily on the basis of formal organizational distinctions. If a single business corporation has established two divisions within a corporate structure, for example, conflicting interests or objectives of those divisions do not create a conflict of interest for a lawyer representing the corporation. Differences within the organization are to be resolved through the organization's decisionmaking procedure.

If an enterprise consists of two or more organizations and ownership of the organizations is identical, the lawyer's obligation is ordinarily to respond according to the decisionmaking procedures of the enterprise, subject to any special limitations that might be validly imposed by positional adversity is not directly adverse; including that financial impact on another member of a corporate family is only indirect adversity; nevertheless finding that even such an indirect adversity might be a "material limitation" under Model Rule 1.7(b) ultimately shifting the burden of proof on the lawyers seeking to undertake the representation; "[I]n any instance where the lawyer concludes that no client consent is required, under either paragraph of Rule 1.7, the lawyer should be prepared to show how he was able to make the various determinations required without contacting the client for information or consent -- particularly determinations (a) that the client does not have an expectation that the corporate affiliate will be treated as a client, and (b) that the proposed representation adverse to the affiliate will not have a material adverse effect on the representation of the client.").

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regulatory regimes such as those governing financial institutions and insurance companies.

On the other hand, when ownership or membership of two or more organizations is not identical, the lawyer must respect the organizational boundaries of each and analyze possible conflicts of interest on the basis that the organizations are separate entities. That is true even when a single individual or organization has sufficient ownership or influence to exercise working control of the organizations . . .

Restatement (Third) of Law Governing Lawyers § 131 cmt. d (2000) (emphases added).

The Restatement includes several illustrations that provide some guidance.

• Restatement (Third) of Law Governing Lawyers § 131 cmt. d, illus. 2 (2000) ("A Corporation owns 60 percent of the stock of B Corporation. Lawyer has been asked by the President of A Corporation to act as attorney for B in causing B to make a proposed transfer of certain real property to A at a price whose fairness cannot readily be determined by reference to the general real estate market. Lawyer may do so only with effective informed consent of the management of B (as well as that of A). The ownership of A and B is not identical and their interests materially differ in the proposed transaction.").

• Restatement (Third) of Law Governing Lawyers § 121 cmt. d, illus. 6 (2000) ("Lawyer represents Corporation A in local real-estate transactions. Lawyer has been asked to represent Plaintiff in a products-liability action against Corporation B claiming substantial damages. Corporation B is a wholly owned subsidiary of Corporation A; any judgment obtained against Corporation B will have a material adverse impact on the value of Corporation B's assets and on the value of the assets of Corporation A. Just as Lawyer could not file suit against Corporation A on behalf of another client, even in a matter unrelated to the subject of Lawyer's representation of Corporation A . . . , Lawyer may not represent Plaintiff in the suit against Corporation B without the consent of both Plaintiff and Corporation A under the limitations and conditions provided in § 122.").

• Restatement (Third) of Law Governing Lawyers § 121 cmt. d, illus. 7 (2000) ("The same facts as in Illustration 6, except that Corporation B is not a subsidiary of Corporation A. Instead, 51 percent of the stock of Corporation A and 60 percent of the stock of Corporation B are owned by X Corporation. The remainder of the stock in both Corporation A and Corporation B is held by the public. Lawyer does not represent X Corporation. The circumstances are such that an adverse judgment against Corporation B will have no material adverse impact on the financial position of Corporation A. No conflict

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of interest is presented; Lawyer may represent Plaintiff in the suit against Corporation B.").

State Ethics Rules

Most states follow the ABA Model Rules approach to this issue, which is discussed above. As explained in that discussion, the ABA Model Rules do not provide any certainty, and therefore give little comfort to lawyers tempted to take a matter adverse to a corporate client's affiliate if they would not otherwise be deterred from doing so by business concerns.

Several jurisdictions have specific ethics rules that seem to go further toward allowing such representations adverse to a corporate client's affiliates. However, none of them provide 100% certainty.

A Washington, D.C., ethics rule takes the most expansive approach, providing numerous comments on the issue and offering language that would seem to permit such representations in more circumstances than allowed in the ABA Model Rules.

One comment provides a general explanation of D.C. Rule 1.13:

As is provided in Rule 1.13, the lawyer who represents a corporation, partnership, trade association or other organization-type client is deemed to represent that specific entity, and not its shareholders, owners, partners, members or "other constituents." Thus, for purposes of interpreting this rule, the specific entity represented by the lawyer is the "client." Ordinarily that client's affiliates (parents and subsidiaries), other stockholders and owners, partners, members, etc., are not considered to be clients of the lawyer. Generally, the lawyer for a corporation is not prohibited by legal ethics principles from representing the corporation in a matter in which the corporation's stockholders or other constituents are adverse to the corporation. See D.C. Bar Legal Ethics Committee Opinion No. 216. A fortiori, and consistent with the principle reflected in Rule 1.13, the lawyer for an organization normally should not be precluded from representing an unrelated client

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whose interests are adverse to the interests of an affiliate (e.g., parent or subsidiary), stockholders and owners, partners, members, etc., of that organization in a matter that is separate from and not substantially related to the matter on which the lawyer represents the organization.

D.C. Rule 1.7 cmt. [21] (emphasis added).

However, the next two comments list the circumstances in which a lawyer representing one member of a corporate family generally cannot take a matter adverse to one of a corporate client's affiliates. The first situation involves the lawyer's acquisition of confidential information from the client that it could use against the client's affiliate.

However, there may be cases in which a lawyer is deemed to represent a constituent of an organization client. Such de facto representation has been found where a lawyer has received confidences from a constituent during the course of representing an organization client in circumstances in which the constituent reasonably believed that the lawyer was acting as the constituent's lawyer as well as the lawyer for the organization client." See generally ABA Formal Opinion 92-365. In general, representation may be implied where on the facts there is a reasonable belief by the constituent that there is individual as well as collective representation. Id. The propriety of representation adverse to an affiliate or constituent of the organization client, therefore, must first be tested by determining whether a constituent is in fact a client of the lawyer. If it is, representation adverse to the constituent requires compliance with Rule 1.7. See ABA Opinion 92-365. The propriety of representation must also be tested by reference to the lawyer's obligation under Rule 1.6 to preserve confidences and secrets and to the obligations imposed by paragraphs (b)(2) through (d)(4) of this rule. Thus, absent informed consent under Rule 1.7(c), such adverse representation ordinarily would be improper if: (a) the adverse matter is the same as, or substantially related to, the matter on which the lawyer represents the organization client,

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(b) during the course of representation of the organization client the lawyer has in fact acquired confidences or secrets (as defined in Rule 1.6(b)) of the organization client or an affiliate or constituent that could be used to the disadvantage of any of the organization client or its affiliate or constituents, or (c) such representation seeks a result that is likely to have a material adverse effect on the financial condition of the organization client.

D.C. Rule 1.7 cmt. [22] (emphases added).

The next comment addresses another scenario in which the lawyer's

representation would generally be improper -- if the lawyer's client and the adversary are considered "alter egos" of each other.

In addition, the propriety of representation adverse to an affiliate or constituent of the organization client must be tested by attempting to determine whether the adverse party is in substance the "alter ego" of the organization client. The alter ego case is one in which there is likely to be a reasonable expectation by the constituents or affiliates of an organization that each has an individual as well as a collective client-lawyer relationship with the lawyer, a likelihood that a result adverse to the constituent would also be adverse to the existing organization client, and a risk that both the new and the old representation would be so adversely affected that the conflict would not be "consentable." Although the alter ego criterion necessarily involves some imprecision, it may be usefully applied in a parent-subsidiary context, for example, by analyzing the following relevant factors: whether (i) the parent directly or indirectly owns all or substantially all of the voting stock of the subsidiary, (ii) the two companies have common directors, officers, office premises, or business activities, or (iii) a single legal department retains, supervises and pays outside lawyers for both the parent and the subsidiary. If all or most of those factors are present, for conflict of interest purposes those two entities normally would be considered alter egos of one another and the lawyer for one of them should refrain from engaging in representation adverse to the other, even on a matter where clauses (a), (b) and (c) of the preceding paragraph [22] are not applicable. Similarly, if

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the organization client is a corporation that is wholly owned by a single individual, in most cases for purposes of applying this rule, that client should be deemed to be the alter ego of its sole stockholder. Therefore, the corporation's lawyer should refrain from engaging in representation adverse to the sole stockholder, even on a matter where clauses (a), (b) and (c) of the preceding paragraph [22] are not applicable.

D.C. Rule 1.7 cmt. [23] (emphases added).

Similarly, a comment to the Florida ethics rules regarding representation of related organizations provides that

a lawyer or law firm who represents or has represented a corporation (or other organization) ordinarily is not presumed to also represent, solely by virtue of representing or having represented the client, an organization (such as a corporate parent or subsidiary) that is affiliated with the client. There are exceptions to this general proposition, such as, for example, when an affiliate actually is the alter ego of the organizational client or when the client has revealed confidential information to an attorney with the reasonable expectation that the information would not be used adversely to the client's affiliate(s). Absent such an exception, an attorney or law firm is not ethically precluded from undertaking representations adverse to affiliates of an existing or former client.

Florida Rule 4-1.13 cmt. (emphasis added). Thus, Florida also recognizes exceptions to the general rule if (1) the lawyer has learned confidences from the corporate client that could be used against the affiliates, and (2) the two corporate family members are considered "alter egos" of each other.

Although Washington, D.C.'s, and Florida's ethics rules clearly decrease the uncertainty about whether lawyers can undertake such representations adverse to corporate clients' affiliates, neither rule reduces the uncertainty to zero. The presence of any uncertainty usually deters lawyers from undertaking such representations.

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Not surprisingly, New York's new ethics rules effective April 1, 2009 deal with this

issue. One of the comments to New York Rule 1.7 essentially follows the ABA

approach -- without coming to a definitive conclusion.

A lawyer who represents a corporation or other organization does not, simply by virtue of that representation, necessarily represent any constituent or affiliated organization, such as a parent or subsidiary. See Rule 1.13(a). Although a desire to preserve good relationships with clients may strongly suggest that the lawyer should always seek informed consent of the client organization before undertaking any representation that is adverse to its affiliates, Rule 1.7 does not require the lawyer to obtain such consent unless: (i) the lawyer has an understanding with the organizational client that the lawyer will avoid representation adverse to the client's affiliates, (ii) the lawyer's obligations to either the organizational client or the new client are likely to adversely affect the lawyer's exercise of professional judgment on behalf of the other client, or (iii) the circumstances are such that the affiliate should also be considered a client of the lawyer. Whether the affiliate should be considered a client will depend on the nature of the lawyer's relationship with the affiliate or on the nature of the relationship between the client and its affiliate. For example, the lawyer's work for the client organization may be intended to benefit its affiliates. The overlap or identity of the officers and boards of directors, and the client's overall mode of doing business, may be so extensive that the entities would be viewed as "alter egos." Under such circumstances, the lawyer may conclude that the affiliate is the lawyer's client despite the lack of any formal agreement to represent the affiliate.

New York Rule 1.7 cmt. [34]. The New York Bar adopted two other comments not

found in the ABA Model Rules. The first provides helpful guidance to lawyers attempting to analyze the conflict of interest situation (although without providing absolute certainty), and the second reminds lawyers of the economic impact of their analysis.

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Whether the affiliate should be considered a client of the lawyer may also depend on: (i) whether the affiliate has imparted confidential information to the lawyer in furtherance of the representation, (ii) whether the affiliated entities share a legal department and general counsel, and (iii) other factors relating to the legitimate expectations of the client as to whether the lawyer also represents the affiliate. Where the entities are related only through stock ownership, the ownership is less than a controlling interest, and the lawyer has had no significant dealings with the affiliate or access to its confidences, the lawyer may reasonably conclude that the affiliate is not the lawyer's client.

New York Rule 1.7 cmt. [34A].

Finally, before accepting a representation adverse to an affiliate of a corporate client, a lawyer should consider whether the extent of the possible adverse economic impact of the representation on the entire corporate family might be of such a magnitude that it would materially limit the lawyer's ability to represent the client opposing the affiliate. In those circumstances, Rule 1.7 will ordinarily require the lawyer to decline representation adverse to a member of the same corporate family, absent the informed consent of the client opposing the affiliate of the lawyer's corporate client.

New York Rule 1.7 cmt. [34B].

State Bar Opinions

State bars also take differing approaches.

Predictably, the New York City Bar has frequently analyzed this issue.

Unfortunately, the New York City Bar's most recent analysis adopts the sort of fact-intensive standard that lacks predictability.

• New York City LEO 2005-05 (6/2005) (addressing what are called "thrust upon" conflicts; among other factors, analyzing the ethics rules governing a lawyer's adversity to a corporate client; "Previous opinions have articulated the circumstances under which an apparent conflict involving a member of a current client's corporate family will be considered an actual conflict of interest requiring consent to continue representing both parties. This determination is based on several factors, including the relationship between the two

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corporate entities, and the relationship between the work the law firm is doing for the current client and the work the law firm wishes to undertake in opposition to the client's corporate family member. See Eastman Kodak Co. v. Sony Corp., 2004 WL 2984297 at *3 (W.D.N.Y. Dec. 27, 2004) ('[t]he relevant inquiry centers on whether the corporate relationship between the two corporate family members is 'so close as to deem them a single entity for conflict of interest purposes"'); Discotrade Ltd v. Wyeth-Ayerst Int'l, Inc., 200 F.Supp.2d 355, 358-59 (S.D.N.Y. 2002) (concluding that a corporate affiliate was also a client for conflict purposes because, among other things, the affiliate was an operating unit or division of an entity that shared the same board of directors and several senior officers and used the same computer network, e-mail system, travel department and health benefit plan as the client); J.P. Morgan Chase Bank v. Liberty Mutual Insurance Co., 189 F.Supp.2d 20, 21 (S.D.N.Y. 2002) (concluding that a subsidiary of a corporate client is also a client for conflicts purposes because 'the relationship [between the two] is extremely close and interdependent, both financial and in terms of direction'; among other things they operated from the same headquarters, shared the same board of directors, and the general counsel (and senior vice president) of the parent was also the general counsel (and senior vice president) of the subsidiary). See also N.Y. City Eth. Op. 2003-03 (whether a corporate affiliate is a client for conflicts purposes 'will depend on many factors, including the relationship between the two corporations and the relationship between the work the law firm is doing for the current client and the work the law firm wishes to undertake in opposition to the client's corporate family member'); [s]ee also ABA Formal Op. No. 95-390 (1995) (factors as to whether a corporate affiliate of a client is also considered a client include whether the subject matter of the representation involves the affiliate; whether affiliate reasonably believes that it is a client of the lawyer; whether the affiliate imparted confidential information to the lawyer in expectation of representation; and whether the lawyer may be required to regard the affiliate as a client due to the relationship between the client and affiliate); N.Y. County Eth. Op 684 (1991) (factors as to whether representation of parent company extends to subsidiary include whether either the parent or subsidiary reasonably believes that an attorney-client relationship exists; whether counsel to the parent is privy to confidential information about subsidiary that could be detrimental to the subsidiary's interests; and whether the parent's interests would be materially adversely affected by an action against its subsidiary).").

The Illinois Bar has taken essentially the same fact-laden approach.

• Illinois LEO 95-15 (5/1996) (addressing the ability of a lawyer representing a corporation to take matters adverse to one of the client's wholly owned subsidiaries; "The Committee therefore concludes that a corporate affiliation, including a majority or even sole ownership of a subsidiary, without more,

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does not make a client corporation's affiliate an additional client of the lawyer. Because a corporate client's affiliate is not deemed to be a client of the corporation's lawyer merely because of the affiliation, then a representation adverse to the affiliate will not be directly adverse to 'another client' within the meaning of Rule 1.7(a)."; "The Committee notes, as do the ABA and the California Bar, that there may well be particular circumstances that would require the lawyer to consider a subsidiary or other constituent of a corporate client to be a client of the lawyer as well. Such instances could include, for example, situations where the lawyer's work for a corporate parent involves direct contact with its subsidiaries and the receipt of information concerning the subsidiaries protected by Rule 1.6 or situations where the client corporation and the subsidiary in question have the same management group. Another situation that would require the lawyer to treat a corporate affiliate as a client is where one entity could be considered the alter ego of the other. In these kinds of circumstances, the lawyer would be required to seek the corporate client's consent, with appropriate disclosure, before accepting a representation adverse to the affiliate."; "In conclusion, the Committee believes that the Rules of Professional Conduct generally permit a lawyer to accept a proposed representation adverse to a subsidiary or other affiliate of an existing corporate client entity. As also noted above, however, this general proposition may be altered by the specific facts and circumstances of any particular situation. As noted above, the better solution to the issue addressed in this opinion is the agreement of lawyers and corporate clients, in defining the scope of an engagement, as to those affiliates that will be included in the corporate client group.").

In California LEO 1989-113, the California Bar concluded that

[a] parent corporation, even one which owns 100 percent of the stock of a subsidiary, is still, for purposes of rule 3-600, a shareholder and constituent of the corporation. Rule 3-600 makes clear that in the representation of corporations, it is the corporate entity actually represented, rather than any affiliated corporation, which is the client.

California LEO 1989-113 (1989). Furthermore, "[t]he fact of total ownership does not change the parent corporation's status as a constituent of the subsidiary." The parent corporation argued that a successful action against its subsidiary would adversely affect its finances. The Bar rejected this argument:

[H]ere, the parent is not a party to the suit against the subsidiary, and there is no prospect that it will be made a party. The representation against the subsidiary can

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therefore have no direct consequences on the parent; the only adversity can be that indirect adversity which might result from the diminution in the value of the parent's stock in the subsidiary if the attorney's suit against the subsidiary is ultimately successful. This possible indirect impact is insufficient to give rise to a breach of the duty of loyalty owed to the parent.

Id. The California Bar recognized only one exception to this rule -- if corporate form is

disregarded and a parent is considered its subsidiary's "alter ego."

Case Law

Courts also take differing positions. Some courts hold that the representation of one member of the corporate family makes other members "clients" for conflicts purposes.4 Other courts have found that the representation of one member of the

corporate family does not have that effect.5

The case law has generally looked at the same factors as the legal ethics

opinions, and has often resulted in law firms' disqualification.

• Honeywell Int'l, Inc. v. Philips Lumileds Lighting Co., Case No. 2:07-CV-463- CE, 2009 U.S. Dist. LEXIS 12496, at *4, *4-5, *6, *7-8, *8 (E.D. Tex. Jan. 6, 2013) (disqualifying Paul Hastings under the simultaneous concurrent representation standard; "Philips Lumileds claims that much of the work conducted by PHJW [Paul Hastings] on behalf of Philips is funneled through a wholly-owned Philips Division, Philips IP&S. Philips IP&S directs intellectual property legal strategy in the United States and abroad for Philips divisions

4 Bd. of Managers v. Wabash Loftominium, L.L.C., 876 N.E.2d 65, 74 (Ill. App. Ct. 2007); Avocent Redmond Corp. v. Rose Elecs., 491 F. Supp. 2d 1000 (W.D. Wash. 2007); UCAR Int'l, Inc. v. Union Carbide Corp., No. 00 Civ. 1338 (GBD), 2002 U.S. Dist. LEXIS 21766 (S.D.N.Y. Nov. 7, 2002); Travelers Indem. Co. v. Gerling Global Reinsurance Corp., No. 99 Civ. 4413 (LMM), 2000 U.S. Dist. LEXIS 11639 (S.D.N.Y. Aug. 14, 2000); Discotrade Ltd. v. Wyeth-Ayerst Int'l, Inc., 200 F. Supp. 2d 355 (S.D.N.Y. 2002); Stratagem Dev. Corp. v. Heron Int'l N.V., 756 F. Supp. 789 (S.D.N.Y. 1991); In re Blinder, Robinson & Co., 123 B.R. 900, 909-10 (Bankr. D. Colo. 1991); Teradyne, Inc. v. Hewlett-Packard Co., No. C-91-0344 MHP ENE, 1991 U.S. Dist. LEXIS 8363 (N.D. Cal. June 6, 1991).

5 Whiting Corp. v. White Mach. Corp., 567 F.2d 713 (7th Cir. 1977); Brooklyn Navy Yard Cogeneration Partners, L.P. v. Superior Court, 70 Cal. Rptr. 2d 419 (Cal. Ct. App. 1997); Pennwalt Corp. v. Plough, Inc., 85 F.R.D. 264 (D. Del. 1980).

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and subsidiaries, including Philips Consumer Electronics, Philips Healthcare, and Philips Lumileds. Similar to other Philips subsidiaries, Philips Lumileds, the defendant in this case, receives legal direction from Philips IP&S. Neither Philips, nor any of its subsidiaries has consented to PHJW's handling this infringement case against Philips Lumileds."; "Honeywell, to the contrary, contends that Philips Lumileds is not a client of PHJW. Honeywell concedes that PHJW represents PENCA [sic] in a number of governmental matters. Honeywell, however, asserts that Philips Lumileds and PENAC [Philips Elecs., N. Am. Corp] do not share a parent-subsidiary relationship, but are attenuated affiliates of one another. Honeywell also denies the fact that PHJW has represented any of the above asserted Philips entities, including Philips IP&S."; "The first issue is whether Philips Lumileds is a current client of PHJW. Here, the issue centers on whether a corporate affiliation creates a concurrent client-lawyer relationship. The issue of whether a corporate affiliation 'ipso facto creates a client-lawyer relationship with every member of a corporate family when one of its members is formally represented by the lawyer' is not addressed in the ABA Model Rules themselves."; "Here, it is undisputed that (1) Philips Lumileds and the other Philips affiliates share a common legal department, Philips IP&S; (2) Philips and Philips Lumileds share common management, computer networks, and marketing designs; and (3) PHJW currently represents PENAC. As indicated above, Philips IP&S directs intellectual property litigation and licensing strategy for Philips subsidiaries worldwide, including Philips Lumileds. Additionally, while it is generally disputed, PHJW has had broad access to confidential information of various Philips entities, based on its representation of various Philips entities. In fact, Lawrence R. Sidman, a partner at PHJW, stated in his declaration that he had received confidential information concerning PENAC, Philips Consumer Electronics, Philips Healthcare, and Philips IP&S. . . . Although it is not clear whether PHJW's representation of PENAC will directly benefit Philips Lumileds, this fact is not dispositive."; "In addition, some courts have pointed to manifestations to the public as a factor relevant to disqualification."; "Here, both the Philips Lumileds' website and marketing materials feature the Philips logo. The PENAC website also features the Philips logo. Considering all the facts, the Court is persuaded that Philips Lumileds should be considered a current client of PHJW." (emphasis added)).

• Cascades Branding Innovation, LLC v. Walgreen Co., Case No. 11 C 2519, 2012 U.S. Dist. LEXIS 61750, at *17, *21, *22, *23-24 (N.D. Ill. May 3, 2012) (disqualifying the law firm of Robins Kaplan from adversity to the subsidiary of a parent company which had interviewed but not hired Robins Kaplan; noting that "[i]t is also clear that the parent company, Cascades Ventures, is directing the current litigation. See GSI, infra. Cascades Ventures and Plaintiff are managed by the same personnel, are part of the same corporate family and are closely aligned in purpose."; "It also appears that Cascades Ventures routinely operates its litigation through subsidiaries created for that

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purpose. In fact, the litigation which Brown sought to entice Robins Kaplan into filing was eventually filed through a subsidiary, Cascades Computer Innovation, LLC."; "[I]t is apparent that Cascades Ventures (the party that had the prospective-client relationship with Robins Kaplan) is effectively the same party as Cascades Branding for the purpose of conflict-of-interest analysis. This conclusion is based on the fact that Cascades Ventures is the sole owner of Cascades Branding, and due to the fact that Cascades Ventures appears responsible for acquiring and managing the legal representation of its subsidiaries. It is further based on the unique business model of Cascades Ventures, a non-practicing entity ('NPE') seeking to enforce patents through subsidiaries."; pointing to the parent's disclosure of material confidences to Robins Kaplan; "The August 25, 2010 communication reflects a distinct litigation strategy with regards to the Elbrus portfolio, and it further reflects that Schultz (e-mailing from an airport) was able to recall this information off the top of his head without the benefit of a file."; "The Court believes the e-mail at issue not only reflects strategy specific to one target in the Elbrus matter, but is illuminating as to Cascades Ventures' core litigation, licensing, reasonable royalty and business model strategies. . . . what sort of return Cascades Ventures would accept, what sort of settlements would make litigation profitable, and what sort of royalty and licensing agreements Cascades was looking for.").

• GSI Commerce Solutions, Inc. v. Babycenter, L.L.C., 618 F.3d 204, 211, 213, 210, 210-11, 211, 211-12, 212 n.3 (2nd Cir. 2010) (disqualifying the law firm of Blank Rome from handling a matter adverse to BabyCenter, a wholly owned subsidiary of Blank Rome's client Johnson & Johnson; ultimately adopting a "operationally integrated" standard for determining what a law firm's corporate client's affiliate should be regarded as a law firm "client" for conflict purposes; noting that the Blank Rome retainer letter contained the following provision: "'Unless otherwise agreed to in writing or we specifically undertake such additional representation at your request, we represent only the client named in the engagement letter and not its affiliates, subsidiaries, partners, joint venturers, employees, directors, officers, shareholders, members, owners, agencies, departments or divisions.'"; noting that Johnson & Johnson complained about Blank Rome's role only after the mediation failed; "Although the American Bar Association ('ABA') and state disciplinary codes provide valuable guidance, a violation of those rules may not warrant disqualification. . . . Instead, disqualification is warranted only if 'an attorney's conduct tends to taint the underlying trial.'" (citation omitted); "The factors relevant to whether a corporate affiliate conflict exists are of a general nature. Courts have generally focused on: (i) the degree of operational commonality between affiliated entities, and (ii) the extent to which one depends financially on the other. As to operational commonality, courts have considered the extent to which entities rely on a common infrastructure. . . . Courts have also focused on the extent to which the affiliated entities rely on or otherwise share

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common personnel such as managers, officers, and directors."; "This focus on shared or dependent control over legal and management issues reflects the view that neither management nor in-house legal counsel should, without their consent, have to place their trust in outside counsel in one matter while opposing the same counsel in another."; "[W]e agree with the ABA that affiliates should not be considered a single entity for conflicts purposes based solely on the fact that one entity is a wholly-owned subsidiary of the other, at least when the subsidiary is not otherwise operationally integrated with the parent company." (emphasis added); "First, Babycenter substantially relies on J&J for accounting, audit, cash management, employee benefits, finance, human resources, information technology, insurance, payroll, and travel services and systems. Second, both entities rely on the same in-house legal department to handle their legal affairs. The member of J&J's in-house legal department who serves as 'board lawyer' for BabyCenter helped to negotiate the E-Commerce Agreement between BabyCenter and GSI that is the subject of the present dispute. Moreover, J&J's legal department has been involved in the dispute between GSI and BabyCenter since it first arose, participating in mediation efforts and securing outside counsel for BabyCenter. Finally, BabyCenter is a wholly-owned subsidiary of J&J, and there is at least some overlap in management control."; "GSI argues that BabyCenter and J&J have forfeited any right to contest Blank Rome's representation. It focuses on the fact that J&J and BabyCenter waited several months before objecting to Blank Rome as counsel. We reject GSI's argument because a party's delay in raising a conflict-of-interest objection does not prohibit a court from deciding whether a conflict of interest exists."; ultimately holding that Blank & Rome's retainer letter was insufficient to allow the law firm to represent a party adverse to the Johnson & Johnson affiliate; noting among other things that the retainer letter purported to allow Blank Rome to sue even departments and divisions of Johnson & Johnson, which would clearly be unethical (emphasis added)).

• Bd. of Managers v. Wabash Loftominium, L.L.C., 876 N.E.2d 65, 74 (Ill. App. Ct. 2007) (assessing the conflict of interests involved in litigation brought by a lawyer who moved from the law firm of Michael Best & Friedrich to the firm of Arnstein & Lehr, which was then representing related corporations; describing the connection between the defendants and the law firm's clients, most of which involved indirect ownership through LLCs; upholding the trial court's reliance on Illinois LEO 95-15, which points to related corporations' "same management group" as a factor demonstrating that the related companies should be considered as the same client for conflicts purposes; "The particular circumstances of this case indicate Arnstein [law firm] was engaged by and reports to a management group that runs parent, subsidiary, and affiliated corporations that own, manage, and develop residential condominium properties in Chicago. The particular circumstances of this case would lead the management group and the Ambelos corporations [the

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holding company which developed residential condominium projects in Chicago] to reasonably believe they were Arnstein's existing clients."; noting that the law firm had represented "this management group" on sixty different matters between 1999 and 2005; explaining that any the doubt about the existence of a lawyer-client relationship be clarified by the lawyer; "Significantly, there is no indication that Arnstein took any affirmative action to inform the Ambelos management group that it was ending their long-term attorney-client relationship regarding the ownership, management, and development of residential condominium properties in Chicago."; also rejecting the law firm's effort to avoid disqualification by imposing an internal screen; disagreeing with the law firm that the clients had waived their right to complain about the conflict by not raising it for six or seven months after learning that the lawyer had moved to the new law firm).

In some situations, the analysis results in courts denying adversaries' disqualification motions.

• FDIC v. Commonwealth Land Title Ins. Co., Case No. 1:08CV2390, 2012 U.S. Dist. LEXIS 127247, at *13, *13-14, *14, *15 (N.D. Ohio Sept. 7, 2012) (finding that a law firm's representation of a parent company did not make one of the parent's subsidiaries a law firm client; "Defendant is not a client of Thompson Hine just by virtue of the fact that it is wholly owned by Chicago Title."; "Moreover, 'parent and subsidiary corporations are separate and distinct legal entities, "even if the parent owns all of the outstanding shares of the subsidiary."'. . . The attorney-client relationship is a contractual one, and a contract cannot bind parties that are not included in the contract."; "During the Brown and Moore matters, Defendant could not have had a reasonable belief that Thompson Hine was their counsel because Defendant was represented by their own attorneys. . . . Defendant was not a party to Chicago Title's Brown or Moore matters. Chicago Title and Defendant appear to have separate legal departments; otherwise this potential conflict would have been brought to the attention of the parties sooner. Chicago Title's indirect interest in its subsidiary (i.e., Defendant) succeeding in the litigation against the FDIC is solely insufficient to create a situation of direct adversity."; "The Court finds that Thompson Hine and Defendant did not have an attorney-client relationship.").

Ability to Define the "Client" in Retainer Agreements and in Outside Counsel Guidelines

Clients and lawyers can define the client as a matter of contract in their retainer

agreements and in their outside counsel guidelines.

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Sometimes clients lose disqualification motions based on such negotiated client identification.

• e2Interactive, Inc. v. Blackhawk Network, Inc., No. 09-cv-629-slc, 2010 U.S. Dist. LEXIS 48333, at *4-5, *6, *12, *13-14, *14-15, *15, *16-17, *17, *17-18 (W.D. Wis. May 17, 2010) (refusing to disqualify Alston & Bird from handling a matter adverse to a Safeway subsidiary while simultaneously representing Safeway itself in another matter; also finding that Alston's past representation of a trade association that included Safeway's subsidiary did not warrant disqualification because the representation was not related to the matter Alston was handling adverse to the subsidiary; explaining that Safeway's in-house lawyer refused to sign Alston's retainer letter that limited the firm's representation to Safeway and excluded affiliates, but then signed a letter with the same provision on a later occasion two years later; "In September 2007, Safeway retained William Baker of Alston & Bird to represent Safeway in the Ware litigation. Ann Erickson, senior corporate counsel for Safeway, refused to sign Alston's initial proposed retainer agreement and specifically objected to an advance waiver of conflicts provision and a 'one client' provision limiting Alston's representation to the Safeway parent entity and not its subsidiaries. The first provision, entitled 'Waiver of Future Conflicts,' stated that Safeway waived any future conflicts so long as the subject matter was not substantially related to Alston's work for Safeway. The second provision, entitled 'Limitation of Client Relationship to One Entity, Not Affiliates,' provided that Alston's 'representation of Safeway, Inc., does not give rise to an attorney-client relationship between the Firm and . . . any . . . subsidiary or affiliated entity . . . .'"; "In summer 2009, Baker sent Erickson a new retainer letter to change the hourly fee arrangement for the Ware litigation, to a fixed monthly fee arrangement. The 2009 retainer letter contained the provisions titled 'Waiver of Future Conflicts' and 'Limitation of Client Relationship to One Entity, Not Affiliates,' that were identical to the provisions Erickson had struck in the October 2007 retainer letter. Erickson struck the 'Waiver of Future Conflicts' provision in the new retainer letter and Alston inserted a notice provision instead; however, she signed the revised retainer letter on or about September 1, 2009 without striking the 'Limitation of Client Relationship' provision."; holding that "[t]he attorney-client relationship may be informal and implied from the words and actions of the parties. . . . Whether and when an attorney client relationship exists depends on the contractual intent and conduct of the parties."; finding that there was no "Conflict by Agreement"; "Safeway struck these provisions, stating its position that by representing Safeway, Alston was representing Safeway's subsidiaries and that Safeway would not argue to allow Alston to sue its subsidiaries. However, Safeway never put these statements into the amended retainer, so it is not clear whether Alston actually agreed with Safeway's position or simply agreed to delete the contrary language from the

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retainer agreement."; "That retainer was replaced with a 2009 retainer in which defendant agreed that Alston's representation of Safeway did not give rise to an attorney-client relationship between Alston and defendant's subsidiaries. In other words, any 'understanding' was erased on September 1, 2009 by agreement. Because there is no evidence that Alston had started representing plaintiffs by that date, the 2007 agreement created no conflict."; "Not so fast, argues defendant: Safeway should not be held to the terms of the 2009 agreement because it was not expecting the conflict terms to change from the previous agreement. This is not going to get defendant very far: a person signing a document has a duty to read it and know the contents of the writing." (emphasis added); "Defendant tries to shift the onus to Alston, by contending that the law firm was its 'fiduciary' who therefore was required to alert Safeway to every change made to the agreement rather than expect Safeway to read it. . . . If Alston sneaked in a change (or just forgot to include Safeway's redactions in the new version of the agreement), that's either a sharp practice or sloppy work, but neither is enough to conclude that a large corporation with sophisticated in-house lawyers should not be held to the terms of an agreement it signed." (emphasis added); also finding that there was no "conflict by creation of [an] attorney-client relationship," because even if the subsidiary was to be treated as a client for conflicts purposes pursuant to the 2007 letter, it did not create a full attorney-client relationship; "An agreement to treat a subsidiary as a client in this setting 'does not in itself establish a full fledged client-lawyer relationship with the affiliates,' ABA Comm. On Ethics and Prof'l Responsibility, Formal Op. 95-390 (1995), so no current or former client status arises out of such an agreement." (emphases added)).

More frequently, clients have defined their outside lawyers' "clients" more broadly, which can result in those firms' disqualification.

• Dr. Falk Pharma GmbH v. Generico, LLC, 916 F.3d 975, 982, 982-83, 983, 984, 984-85, 985, 986 (Fed. Cir. 2019) (disqualifying law firm of Katten Muchin from representing its client Mylan in trademark litigation against Bausch & Lomb, relying on the engagement letter Katten had earlier signed with Bausch & Lomb’s parent Valeant, which recognized all Valeant affiliates as Katten Muchin clients; explaining that two Alston & Bird lawyers moved to Katten and brought Mylan as a client with them, which was then a defendant in a case brought by Valeant; “Circumstances in which an affiliate is considered a client of a lawyer can arise by express agreement or when affiliates are so interrelated that representation of one constitutes representation of all.”; “Katten’s representation of Mylan adverse to Valeant- CA and Salix in Valeant II and its ongoing representation of Bausch & Lomb, an affiliate of movants, presents a concurrent conflict of interest in violation of Rule 1.7. This is true even though movants are affiliates of Bausch & Lomb

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because the terms of the engagement letter and movants’ demonstration of interrelatedness between the various Valeant affiliates presents circumstances such that movants should also be considered a client of Katten.”; “Because the engagement letter creates an ongoing attorney-client relationship between the law firm, Katten, and its organizational clients, Valeant-CA and Salix, Katten’s representation of Mylan adverse to movants in Valeant II gives rise to a concurrent conflict of interest under Rule 1.7. The express terms of the engagement letter and accompanying OC Guidelines indicate that Katten formed such a relationship with the movants when it signed the engagement letter for the Bausch & Lomb trademark litigation. Specifically, the engagement letter states that it ‘represents the general terms of engagement governing the overall relationship between [Katten] and Valeant Pharmaceuticals International, Inc.’ . . . This sentence, on its face, demonstrates that Katten’s relationship extends beyond just Bausch & Lomb to at least Valeant-CA.” (first alteration in original); “The OC Guidelines, which are expressly incorporated into the engagement letter, further extend the relationship to include any Valeant entity.”; also relying on case law to come to the same conclusion; “Even if there were any plausible ambiguity in the engagement letter, Mylan’s arguments would still fail because Valeant-CA, Salix, and Bausch & Lomb have demonstrated that the three entities are sufficiently interrelated to give rise to a corporate affiliate conflict. The relevant regional circuits have not previously set out factors governing corporate interrelatedness in this context."; pointing to the frequently cited “operational commonality” standard articulated in GSI Commerce Solutions, Inc. v. BabyCenter, L.L.C., 618 F.3d 204, 210-11 (2d Cir. 2010); “In the absence of evidence to the contrary, we conclude that the relevant regional circuits would likely find the Second Circuit’s reasoning persuasive and would therefore adopt its factors here. In particular, we find that they would agree that shared or dependent control over operational and legal matters between the affiliates is significant to the inquiry. Accordingly, we apply the Second Circuit’s interrelatedness test to the facts in this case, and find that Valeant-CA, Salix, and Bausch & Lomb all share a high degree of operational commonality and are financially interdependent. Gorman Suppl. Decl. at ¶¶ 5, 6, 7, 10, 11, 12.”; “The two also 'share the same in-house Valeant legal department.'” (internal citation omitted); recognizing that some courts adopt a per se disqualification standard for ethics violations, while others look at total circumstances, but that Katten would be disqualified under either standard; “Mylan contends that, even if Katten has violated Rule 1.7, disqualification is not warranted under the circumstances. Some district courts have held that disqualification is mandatory for violation of Rule 1.7. See, e.g., Manoir-Electroalloys Corp. v. Amalloy Corp., 711 F. Supp. 188, 195 (D.N.J. 1989) (finding that disqualification should be mandatory for violation of Rule 1.7). But other district courts have considered whether the totality of the circumstances— including the impact, nature, and degree of a conflict, the prejudice or hardship to either party, and which party was responsible for creating the

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conflict—warrants disqualification. Wyeth v. Abbott Labs., 692 F. Supp. 2d 453, 457-59 (D.N.J. 2010) (citing Boston Sci. Corp. v. Johnson & Johnson, Inc., 647 F. Supp. 2d 369, 374 (D. Del. 2009); Elonex I.P. Holdings, Ltd. v. Apple Computer, Inc., 142 F. Supp. 2d 579, 583-84 (D. Del. 2001) (balancing factors to find disqualification unwarranted). We have previously disqualified counsel without consideration of any factor, other than the fact of the ethical violation, but did so in a nonprecedential decision. Freedom Wireless, 2006 U.S. App. LEXIS 32797, 2006 WL 8071423, at *3 (‘Having concluded that a conflict of interest exists, we further conclude that disqualification . . . is warranted.’). Here, we need not decide which approach is preferable because we find that, even if additional considerations were necessary, they all weigh in favor of disqualification.” (alteration in original); “Finally, we conclude that Katten’s erection of an ethical wall is insufficient to resolve its violation of Rule 1.7. Katten claims that this wall cordons off Mukerjee and Soderstrom from Katten attorneys who have worked on matters for Bausch & Lomb, Valeant- CA, or affiliates in the 18 months preceding May 7, 2018. But this wall does nothing to address the concerns stemming from Katten’s violation because it was created after Mukerjee and Soderstrom joined Katten, it applies only partially to work conducted within 18 months before May 7, 2018, and Katten never previously informed movants of any potential conflict.” (emphases added)).

• Avocent Redmond Corp. v. Rose Elecs., 491 F. Supp. 2d 1000, 1004, 1004 n.2, 1007-08, 1010, 1011 (W.D. Wash. 2007) (disqualifying Heller Ehrman from adversity to a corporate affiliate of a corporate client; noting that the retainer letter with its client specifically indicates that the law firm will represent its corporate client "and its affiliates"; "Had Heller Ehrman wanted to limit the scope of its representation, it could have done so by expressly limiting the OSA affiliates that it was agreeing to represent rather than broadly agreeing to represent all of them. As one scholar cited by defendant's expert states, 'The lack of a per se disqualification rule does not mean that the corporate family would be unable to impose such a rule. The law firm and client, in the initial engagement letter, could always agree to treat some or all members of the corporate family as a single entity, or as separate entities'). Ronald D. Rotunda, Conflicts Problems When Representing Members of Corporate Families, 72 Notre Dame L. Rev. 655, 687-88 (1997); see Dkt. # 68 at P8. Furthermore, the conflict at issue here could have been discovered earlier if Heller Ehrman had listed 'OSA . . . and its affiliates' as the client in its electronically-maintained conflicts database." (emphasis added); also noting that during the scope if its representation of the corporate client Heller Ehrman would have dealt with licenses in the same "patent family" as the patents at issue in the current adversity -- meaning that the law firm's previous representation of the corporate client was "substantially related" to the current adversity; also noting that Heller Ehrman retained its former client's files -- meaning that Heller Ehrman's current adversary would have to

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ask the law firm for its files; "This puts Heller Ehrman in the troublesome position of having to review and produce documents from its own files relating to the representation of a former client because a current litigation client has requested the documents in discovery."; "Should any issue regarding attorney-client privilege or work product doctrine arise, Heller Ehrman lawyers would be both asserting privilege or work-product on behalf of Redmond as an OSA affiliate, and representing defendants in contesting any claim of privilege." (emphasis added)).

Conclusion

There is no clear answer to this hypothetical. Under some courts' and bars' approaches, lawyers might be barred from representing one subsidiary and being adverse to another. On the other hand, the sister-subsidiary relationship is even more attenuated than the parent-subsidiary connection, and the ABA Model Rules emphasize that the lawyer's client is the entity and not any of its constituents.

Under the logical fact-intensive approach, lawyers would need more facts to decide whether they could represent their client in the lawsuit without the defendant's consent.

Best Answer

The best answer to this hypothetical is MAYBE.

B 6/14

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Identifying the Client Within a Corporate Family: In-House Lawyers' Issues

Hypothetical 13

After about three years of practice, you decided to move in-house with your largest client. From your work with that client, you know that it has several wholly owned subsidiaries and several partially owned subsidiaries.

As an in-house lawyer, will you be jointly representing the parent corporation (which employs you) and all of its subsidiaries?

(A) YES

(B) NO

MAYBE

Analysis

Lawyers representing corporations owe their duty to the corporation as an entity, not to any of its constituents. ABA Model Rule 1.13(a). This basic rule seems easy to understand in the abstract, but can result in enormously difficult ethics situations for in- house and outside lawyers representing corporations.

The ABA Model Rules explain that

[w]ith respect to the law department of an organization, including the government, there is ordinarily no question that the members of the department constitute a firm within the meaning of the Rules of Professional Conduct. There can be uncertainty, however, as to the identity of the client. For example, it may not be clear whether the law department of a corporation represents a subsidiary or an affiliated corporation, as well as the corporation by which the members of the department are directly employed.

ABA Model Rule 1.0 cmt. [3] (emphasis added).

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The Restatement similarly recognizes that the existence of an attorney-client relationship within a single corporation or a corporate family depends on the circumstances.

Whether a lawyer represents affiliated organizations as clients is a question of fact . . . . When a lawyer represents two or more organizations with some common ownership or membership, whether a conflict exists is determined primarily on the basis of formal organizational distinctions. If a single business corporation has established two divisions within a corporate structure, for example, conflicting interests or objectives of those divisions do not create a conflict of interest for a lawyer representing the corporation. Differences within the organization are to be resolved through the organization's decisionmaking procedure.

If an enterprise consists of two or more organizations and ownership of the organizations is identical, the lawyer's obligation is ordinarily to respond according to the decisionmaking procedures of the enterprise, subject to any special limitations that might be validly imposed by regulatory regimes such as those governing financial institutions and insurance companies.

On the other hand, when ownership or membership of two or more organizations is not identical, the lawyer must respect the organizational boundaries of each and analyze possible conflicts of interest on the basis that the organizations are separate entities. That is true even when a single individual or organization has sufficient ownership or influence to exercise working control of the organizations.

Restatement (Third) of Law Governing Lawyers § 131 cmt. d (2000). An illustration describes the complication triggered by other owners' stake in a subsidiary controlled by the lawyer's client/employer.

A Corporation owns 60 percent of the stock of B Corporation. Lawyer has been asked by the President of A Corporation to act as attorney for B in causing B to make a proposed transfer of certain real property to A at a price whose fairness cannot readily be determined by reference to the general real estate market. Lawyer may do so only with

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effective informed consent of the management of B (as well as that of A). The ownership of A and B is not identical and their interests materially differ in the proposed transaction.

Restatement (Third) of Law Governing Lawyers § 131illus. 2 (2000).

In 2008, the New York City Bar took the same basic approach.

• New York City Bar LEO 2008-2 (2008) ("In analyzing the conflicts facing inside counsel that represent corporate affiliates, it is important to divide the discussion into two distinct scenarios. The first is when inside counsel represent a parent corporation and one or more of the parent's wholly owned affiliates. The second is when inside counsel represent (a) a parent and one or more affiliates that the parent controls, but does not wholly own, or (b) several affiliates controlled, but not wholly owned, by a common parent." (footnote omitted); "In the first scenario, inside counsel's representation is not of entities whose interests may differ because the parent's interests completely preempt those of its wholly owned affiliates. As a matter of corporate law, 'in a parent and wholly-owned subsidiary context, the directors of the subsidiary are obligated only to manage the affairs of the subsidiary in the best interests of the parent and its shareholders.' Anadarko Petroleum Corp. v. Panhandle E. Corp., 545 A.2d 1171, 1774 (Del. 1988). See also Availl, Inc. v. Ryder Sys., Inc., 913 F. Supp. 826, 832 (S.D.N.Y. 1996) ('Because the officers and directors of a parent company owe allegiance only to that company and not to a wholly owned subsidiary, it is reasonable to conclude that a parent corporation itself is under no obligation to provide the subsidiary with independent representation . . . . It would be anomalous to impose a duty upon the corporation, an artificial person, when all the natural persons who are its officers and directors have no such duty, and there is no natural person to take up the duty.'), aff'd, 110 F.3d 892 (2d Cir. 1997).").

Thus, for conflicts purposes, corporate parents and their wholly owned subsidiaries generally are treated as a single client or joint clients, but partially owned subsidiaries may not be. This highlights the wisdom of in-house lawyers defining their

"clients" for ethics purposes.

In 2017, the Illinois Bar issued a remarkable legal ethics opinion that no company seems to have followed.

• Illinois LEO 17-05 (5/2017) (analyzing the loyalty (conflicts) and confidentiality implications of parent company's in-house lawyer's dealings with corporate

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subsidiaries of the lawyer's client/employer; recommending: (1) that lawyer treat subsidiaries as separate clients for loyalty/conflicts purposes, including even obtaining consents or prospective consents in the event of any "competing interests"; and (2) also treat subsidiaries as separate clients for confidentiality purposes, including even analyzing how confidential information will be shared among the corporate affiliates; "For the in-house lawyer, there is no one size fits all test for identifying the client. It may change depending on the circumstances of the representation. Is it the single corporate parent (whose interests may be considered to preempt the interests of any subsidiary, or in any case, be able to provide informed consent to any conflict waiver or disclosure of confidential information)? Or is it the legally distinct individual subsidiaries? Recognizing subsidiaries as separate clients seems to be acknowledged in the IRPC noted above, particularly IRPC 1.13. For practical purposes, treating subsidiaries as distinct clients would seem the better practice if for no other purpose than to focus the in-house lawyer's attention on identifying and addressing problematic legal and ethical issues."; "With respect to conflicts of interests, when an in-house lawyers is called upon to provide legal services to a related corporate entity that is not the lawyer's direct employer, the lawyer must be careful to recognize the potential for competing interests. . . . As with any representation, the in-house lawyer must consider and, if applicable, apply IRPC 1.7. Although impacted by client identification, the interests of intra-family corporate entities may or may not be considered aligned. If the interests are determined to conflict, an in-house lawyer can consider a number of actions to address and resolve the conflict. First and foremost is to obtain, if possible, the subsidiary's and parent's consent to the representation as permitted by IRPC 1.7(b). Counsel may also consider obtaining advance conflict waivers, limiting the scope of the representation to eliminate the potential conflict, or retaining outside counsel."; "Perhaps even thornier issues than conflict arise with respect to confidentiality under IRPC Rule 1.6. Virginia State Bar Opinion 1838 provides that an in-house lawyer must maintain a subsidiary's confidences unless the subsidiary consents to disclosure. In most corporate contexts, maintaining this confidentiality from the corporate parent, and perhaps other subsidiaries, is likely unworkable and doesn't reflect the work of an in-house legal department. . . . Attempting to maintain confidentiality between related corporate entities, but particularly between a subsidiary and a parent, tends to disregard corporate ownership and hierarchy. . . . In these situations, as with conflicts of interest, a prudent course for the in-house lawyer may be to memorialize in writing how confidential information will be treated, obtain advance consent for disclosure, or retain outside counsel." (emphases added)).

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For purposes of privilege, most courts protect as privileged communications between a corporate parent's lawyer and wholly owned or controlled subsidiaries' employees.

• SCR-Tech LLC v. Evonik Energy Servs. LLC, 2013 NCBC 42, at ¶ 18, ¶¶ 15, 26 (N.C. Super. Ct. Aug. 13, 2013) (reviewing the very sparse case law on privilege protection for communications with partially owned subsidiaries; dealing with communications to and from plaintiff SCR-Tech (1) when the company was partially owned by Ebinger; (2) when the company was then sold to, and wholly owned by, Catalytica, and (3) when the company later entered into a "common interest agreement" with Ebinger, because both faced similar litigation; applying a sort of sliding scale, considering both the percentage of ownership and any "shared legal interest."; concluding that the privilege protected communications during all three situations, because (1) SCR-Tech's shared legal interest with Ebinger meant that the court did not have to determine whether Ebinger's 37.5% ownership (which gave it control) was "too limited" to assure privilege protection by itself; (2) Catalytica's 100% ownership of, and shared legal interest with, SCR-Tech assured privilege protection; (3) the "common interest" doctrine could protect communications between SCR-Tech and its former controlling shareholder Ebinger even in the absence of any corporate affiliation at that time.).

• Glidden Co. v. Jandernoa, 173 F.R.D. 459, 472-73 (W.D. Mich. 1997) ("The universal rule of law, expressed in a variety of contexts, is that the parent and subsidiary share a community of interest, such that the parent (as well as the subsidiary) is the 'client' for purposes of the attorney-client privilege. See Crabb v. KFC Nat'l Man. Co., 1992 U.S. App. LEXIS 38268, 1992 WL 1321 (6th Cir. 1992) ('The cases clearly hold that a corporate 'client' includes not only the corporation by whom the attorney is employed or retained, but also parent, subsidiary and affiliate corporations.') (quoting United States v. AT&T, 86 F.R.D. 603, 616 (D.D.C. 1979)). Consequently, disclosure of legal advice to a parent or affiliated corporation does not work a waiver of the confidentiality of the document, because of the complete community of interest between parent and subsidiary. Id. at *2. Numerous courts have recognized that, for purposes of the attorney-client privilege, the subsidiary and the parent are joint clients, each of whom has an interest in the privileged communications. See, e.g., Polycast Tech. Corp. v. Uniroyal, Inc., 125 F.R.D. 47, 49 (S.D.N.Y. 1989); Medcom Holding Co. v. Baxter Travenol Lab., 689 F. Supp. 841, 842 (N.D. Ill. 1988). Simply put, a sole shareholder has a right to complete disclosure about the legal affairs of its wholly owned subsidiary.").

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In-house lawyers can essentially assure privilege protection by jointly representing their client/employer and any wholly or partially owned subsidiaries.

However, that can create conflicts issues if adversity develops, and perhaps more serious file ownership issues if such adversity develops.

Best Answer

The best answer to this hypothetical is MAYBE.

B 6/14

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Business Adversity

Hypothetical 14

You have developed a statewide reputation for representing retailers. Your largest client is a retailer which sells clothing. You just received a call from your client's largest competitor. You are flattered that the competitor has called you, but you also worry that representing both retailers might create an inappropriate conflict of interest.

May you represent both retailers?

(A) YES

(B) NO

(A) YES (PROBABLY)

Analysis

As a matter of ethics, nothing automatically prohibits a lawyer from representing business competitors. In fact, lawyers might justifiably believe that the expertise they gain in representing one company makes them better able to skillfully represent companies in the same business sector.

A comment to the ABA Model Rules explains that

simultaneous representation in unrelated matters of clients whose interests are only economically adverse, such as representation of competing economic enterprises in unrelated litigation, does not ordinarily constitute a conflict of interest and thus may not require consent of the respective clients.

ABA Model Rule 1.7 cmt. [6].

Although representing competing businesses does not trigger a per se conflict, lawyers might find themselves confronting a conflict if business adversity has become legal adversity.

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Direct adversity requires a conflict as to the legal rights and duties of the clients, not merely conflicting economic interests. ["For example, where a lawyer may have represented two clients in unrelated matters and both clients were in competition to sell foods to a third party, the representation of one of those clients in negotiating a sale to a third party would not constitute a violation of Rule 1.7(a). See Rule 1.7 cmt. 6."] There may be direct adversity even though there is no overt confrontation between the clients, as, for example, where one client seeks the lawyer's advice as to his legal rights against another client whom the lawyer represents on a wholly unrelated matter. Thus, for example, a lawyer would be precluded by Rule 1.7(a) from advising a client as to his rights under a contract with another client of the lawyer, or as to whether the statute of limitations has run on potential claims against, or by, another client of the lawyer. Such conflict involves the legal rights and duties of the two clients vis-à-vis one another.

ABA LEO 434 (12/8/04) (emphasis added).

This risk dramatically increases in heavily regulated industries, where business

competitors need some government approval to operate. For instance, in the

healthcare world regulations often require a hospital to seek government approval to expand. A business competitor opposing such an expansion therefore has a legal forum in which the competitor can complain about the expansion. Such a dispute clearly involves legal adversity rather than business adversity.

The Restatement takes the same approach.

• Restatement (Third) of Law Governing Lawyers § 121 cmt. c(iii) (2000) ("General antagonism between clients does not necessarily mean that a lawyer would be engaged in conflicted representations by representing the clients in separate, unrelated matters. A conflict for a lawyer ordinarily exists only when there is conflict in the interests of the clients that are involved in the matters being handled by the lawyer or when unrelated representations are of such a nature that the lawyer's relationship with one or both clients likely would be adversely affected.").

The Restatement provides another example.

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Lawyer has been retained by A and B, each a competitor for a single broadcast license, to assist each of them in obtaining the license from Agency. Such work often requires advocacy by the lawyer for an applicant before Agency. Lawyer's representation will have an adverse effect on both A and B as that term is used in this Section. Even though either A or B might obtain the license and thus arguably not have been adversely affected by the joint representation, Lawyer will have duties to A that restrict Lawyer's ability to urge B's application and vice versa. In most instances, informed consent of both A and B would not suffice to allow the dual representation . . . .

Restatement (Third) of Law Governing Lawyers § 121 cmt. c(i), illus. 1 (2000).

Several large firms have been disqualified or faced disqualification risks based on what could be seen as business adversity.

In 2014, Baker Botts lost a $41 million malpractice case, but later dodged the bullet based on the statute of limitations.

The firm ultimately avoided liability on a technicality.

• Axcess Int'l, Inc. v. Baker Botts, L.L.P., No. 05-14-01151-CV, 2016 Tex. App. LEXIS 3081 (Tex. App. Mar. 24, 2016) (upholding a directed verdict for the law firm of Baker Botts in a malpractice case brought by a former client; explaining that Baker Botts had obtained patents for competing companies, and had later declined to represent either company when the two companies began to challenge each other's patents while being represented by other lawyers; the trial court granted the directed verdict after a $41,000,000 jury verdict against Baker Botts; the trial court granted the directed verdict after finding that the plaintiff had missed the limitations for suing Baker Botts; the court upheld the directed verdict on other grounds -- rejecting the plaintiff's expert testimony on causation).

Also in 201 4, the Federal Circuit upheld Jones Day's disqualification in a widely- reported troubling decision.

• Celgard LLC v. LG Chem, Ltd., 594 F. App'x 669, 671, 672 (Fed. Cir. Dec. 10, 2014) (disqualifying Jones Day from representing a patent infringement plaintiff in seeking a ruling that would damage one of the other Jones Day's clients; "We agree with Apple that Jones Day's conflicting representation here

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requires disqualification under the applicable legal standard"; "Rule 1.7(a), which governs concurrent conflicts of interest, prohibits representation when such representation 'will be directly adverse to another client[.]' N.C. Rule of Prof'l Conduct 1.7(a). Because Jones Day's representation here is 'directly adverse' to the interests and legal obligations of Apple, and is not merely adverse in an 'economic sense,' the duty of loyalty protects Apple from further representation of Celgard."; "Apple faces not only the possibility of finding a new battery supplier, but also additional targeting by Celgard in an attempt to use the injunction issue as leverage in negotiating a business relationship. Thus, in every relevant sense, Jones Day's representation of Celgard is adverse to Apple's interests."; "This conclusion is not altered by the fact the Apple is not named as a defendant in this action. The rules and cases such as Freedom Wireless [Freedom Wireless, Inc. v. Boston Commc'ns Grp., Inc., Nos. 2006-1020, 2006 U.S. App. LEXIS 32797 (Fed. Cir. Mar. 20, 2006)] interpreting them make clear it is the total context, and not whether a party is named in a lawsuit, that controls whether the adversity is sufficient to warrant disqualification."; "As evidenced by Jones Day's attempts to limit the nature of the representation, Jones Day and Celgard clearly knew the potential for conflict here yet elected to continue with the representation. See [opposition brief] at 4 ('Jones Day explained that it could represent Celgard against LG Chem, but not against customers of LG Chem who were also Jones Day clients -- such as Apple.'). Thus, the legal costs and delay in proceedings that may result from a disqualification are attributable in no small way to Celgard and Jones Day themselves.").

Some commentary at the time surmised that Jones Day's client was planning to parlay a victory in this patent infringement case into a direct action against Apple itself.

Of course, Jones Day could not have handled that follow-on case. But perhaps the court worried that Jones Day was essentially creating a litigation template that its client could use against Jones Day's other client Apple.

A year later, the Massachusetts Supreme Court dismissed a malpractice action against Finnegan Henderson. The Massachusetts Supreme Court held that Finnegan

Henderson had not committed malpractice by assisting a business competitor of another firm client – because the two competitors were not legal adversaries.

• Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, 42 N.E.3d 199, 200, 203, 204, 204-05, 205, 205-06, 206, 207 (Mass. 2015) (dismissing

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a malpractice case against the Finnegan Henderson patent case filed by a client who claimed that the law firm had improperly assisted one of its competitors in prosecuting a patent for a competing product; "In this case we consider whether an actionable conflict of interest arises under Mass. R. Prof. C. 1.7 . . . when attorneys in different offices of the same law firm simultaneously represent business competitors in prosecuting patents on similar inventions, without informing them or obtaining their consent to the simultaneous representation." (emphasis added); "Maling and Masunaga were not adversaries in the traditional sense, as they did not appear on opposite sides of litigation. Rather, they each appeared before the USPTO in separate proceedings to seek patents for their respective screwless eyeglass devices." (emphasis added); "Maling contends, however, that he and Masunaga were directly adverse within the meaning of rule 1.7(a) (1) because they were competing in the 'same patent space.' We disagree that the meaning of 'directly adverse' stretches so far." (emphasis added); "Finnegan's representation of Maling and Masunaga is analogous to that undertaken by the law firm in Curtis [Curtis v. Radio Representatives, Inc., 696 F. Supp. 729 (D.D.C. 1988)]. Finnegan represented two clients competing in the screwless eyeglass device market in proceedings before the USPTO. As Maling acknowledges, Finnegan was able to successfully to obtain patents from the USPTO for both his device and Masunaga's in the same way that the law firm Curtis was able to obtain radio broadcast licenses for each of its clients from the FCC. Maling and Masunaga were not competing for the same patent, but rather different patents for similar devices."; "If the USPTO had called an interference proceeding to resolve conflicting claims in the Maling and Masunaga patent applications, or if Finnegan, acting as a reasonable patent attorney, believed such a proceeding was likely, the legal rights of the parties would have been in conflict, as only one inventor can prevail in an interference proceeding. In such a case, rule 1.7 would have obliged Finnegan to disclose the conflict and obtain consent from both clients or withdraw from representation."; "Maling's conclusory allegations as to the high degree of similarity between his device and Masunaga device are contradicted by his acknowledgment elsewhere in the complaint that patents issued for both his applications and the Masunaga applications."; "Maling's allegations do not permit any inference as to whether the similarities between the inventions at the time Finnegan was retained to prepare and prosecute Maling's patent applications were of such a degree that Finnegan should have reasonably foreseen the potential for an interference proceeding. Maling's conclusory statement that the inventions were very similar is precisely the type of legal conclusion that we do not credit. . . . Moreover, Maling makes no allegations that an interference proceeding was instituted, nor has he alleged facts supporting the inference that Finnegan took positions adverse to Maling and favorable to Masunaga in the prosecution of their respective patents." (footnote omitted); "We also recognize that subject matter conflicts can give rise to conflicts of interest

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under rule 1.7 (a)(1) in nonlitigation contexts."; "Here, such a conflict likely arose in 2008 when Maling sought a legal opinion from Finnegan regarding the likelihood that he might be exposed to claims by Masunaga for patent infringement. Finnegan declined to provide the opinion, and Maling alleges that he lost financing as a result. Providing the opinion arguably would have rendered the interests of Maling and Masunaga 'directly adverse' within the meaning of rule 1.7(a)(1), and either declining representation or disclosing the conflict and obtaining consent would have been the proper course of action. But there is no allegation that Finnegan had agreed to provide such opinions in its engagement to prosecute Maling's patents. Without such a claim, we cannot conclude that a conflict based on direct adversity has been adequately alleged." (footnote omitted); "In his complaint, Maling alleges in conclusory terms that Finnegan was unable to protect both his interests and Masunaga's and ultimately chose to protect Masunaga at his expense in the patent prosecution process. In Maling's view, Finnegan 'pulled its punches' and got more for Masunaga that for Maling before the USPTO. He has failed, however, to allege sufficient facts to support such a proposition."; "Finnegan's subsequent inability or unwillingness to provide a legal opinion regarding the similarities between the Maling and Masunaga inventions also raises a question whether the simultaneous representation 'foreclose[d] [a] course[] of action' that should have been pursued on Maling's behalf. . . . As previously discussed, rendering such an opinion would likely have created a direct conflict between Maling and Masunaga in violation of rule 1.7(a)(1). To the extent that such a conflict was foreseeable, because, as Maling alleges, the Masunaga and Maling inventions were so similar, it is possible that Finnegan should have declined to represent Maling from the outset of his case so as to also avoid a violation of rule 1.7(a)(2). This, however, depends in large measure on the nature of Finnegan's engagement by Maling in 2003." (emphasis added)).

Representing competing businesses carries other risks too. First, lawyers are taking a business risk if they represent the competitor of a jealous (and lucrative) client.

Second, the lawyer's acquisition of confidential information from one of the clients could place the lawyer in a nearly untenable position. For instance, a lawyer learning that a client is about to engage in some important business venture obviously may not tell the client's competitor. But what if the competitor asks the client for advice about that matter? The lawyer's silence could itself be telling, and possibly even violate the lawyer's confidentiality duties to the first client.

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Best Answer

The best answer to this hypothetical is (A) YES (PROBABLY).

N 3/12; B 8/14

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Adverse Financial Impact

Hypothetical 15

You represent an insurance company in labor and employment matters. On behalf of another client, you recently filed a lawsuit against an out-of-state company, seeking $10 million in damages. You just received a call from the insurance company's vice president. She tells you that her company insures the out-of-state company, and that she considers your lawsuit against the company to be a direct conflict -- because the insurance company must pay the cost of defense and ultimately pay any judgment against the defendant company.

Is the lawsuit against the defendant company "adverse" to your insurance company client for conflicts purposes (thus requiring you to obtain the insurance company's consent before going forward)?

(A) YES

(B) NO

(B) NO (PROBABLY)

Analysis

It is often difficult to determine if an adverse financial impact on a client triggers

the need for consent. For instance, a lawyer's bank client might suffer financially if a

transaction falls apart. If the transaction's demise results from a lawsuit that the lawyer

has pursued, should the lawyer have obtained the bank client's consent before bringing

the lawsuit?

This hypothetical comes from a ABA Legal Ethics Opinion, in which the ABA explained that the lawyer confronting this situation did not have a conflict. The ABA

explained the definition of "adversity" that triggers the conflicts rules.

Direct adverseness requires a conflict as to the legal rights and duties of the clients, not merely conflicting economic interests. . . . There may be direct adverseness even though there is no overt confrontation between the clients, as, for

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example, where one client seeks the lawyer's advice as to his legal rights against another client whom lawyer represents on a wholly unrelated matter. Thus, for example, a lawyer would be precluded by Rule 1.7(a) from advising a client as to his rights under a contract with another client of the lawyer, or as to whether the statute of limitations has run on potential claims against, or by, another client of the lawyer. Such conflicts involve the legal rights and duties of the two clients vis-à-vis one another.

ABA LEO 434 (12/8/04). The ABA acknowledged that the lawyer might be prohibited from taking discovery of the insurance company client, depending upon the adverseness involved; the lawyer might be unable to represent the litigation client if the lawyer has protected information from the insurance company client that "would materially help the plaintiff in his claims against the insured defendant."

The Restatement discusses this issue, but without reaching a conclusion.

Restatement (Third) of Law Governing Lawyers § 121 cmt. d (2000) explains that

"problems could arise where the client and nonclient are individuals and representation adverse to the nonclient could have direct material effect on the client's interest. Such a situation would exist, for example, where a lawyer representing one spouse was asked to bring suit against the other, or where a lawyer representing one holder of an interest in property was asked by someone else to bring suit against the other holder in circumstances where the suit could materially and adversely affect the interest of the lawyer's client."

In some ways, this analysis resembles the type of "proximate cause" analysis found in tort law.

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Best Answer

The best answer to this hypothetical is (B) NO (PROBABLY).

N 3/12

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Discovery of Clients

Hypothetical 16

A new associate is preparing a number of third party subpoenas that you will have to issue in a commercial case. He just called to ask a few questions.

(a) Absent consent, may you issue a subpoena to another firm client (which your firm represents on unrelated matters) when you expect a dispute over the discovery you seek?

(A) YES

(B) NO

(B) NO

(b) Absent consent, may you issue a subpoena to a bank (which your firm represents on unrelated matters), when there is no reason to think that the bank would resist or dispute the subpoena?

(A) YES

(B) NO

(B) NO (PROBABLY)

Analysis

(a)-(b) The question here is whether discovery amounts to the sort of "adversity" that triggers the conflicts rules.

A comment to the ABA Model Rules explains that

a directly adverse conflict may arise when a lawyer is required to cross-examine a client who appears as a witness in a lawsuit involving another client, as when the testimony will be damaging to the client who is represented in the lawsuit.

ABA Model Rule 1.7 cmt. [6].

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The ABA indicated in ABA LEO 367 (10/16/92) that a lawyer generally may not cross-examine or conduct discovery of a firm client, even if the cross-examination is unrelated to the representation of that client. The ABA suggested that co-counsel may conduct such discovery.

• ABA LEO 367 (10/16/92) ("The Committee concludes that a lawyer's examining the lawyer's client as an adverse witness, or conducting third party discovery of a client, will ordinarily present a conflict of interest that is disqualifying absent consent of one or both of the clients involved (depending . . . on the nature and degree of the conflict) . . . ."; a witness would be considered a current client for conflicts purposes "if there is a continuing relationship between lawyer and client, even if the lawyer is not on a retainer, and even if no active matters are being handled"; a lawyer in that situation could face a conflict if the lawyer has "specific confidential information relevant to the cross-examination," or even if the lawyer only has general information -- "to the extent a lawyer's general familiarity with how a client's mind works is relevant and useful information, it may also be disqualifying information within the contemplation of Rule 1.8(b), which generally prohibits a lawyer from using information relating to the representation of a client to the disadvantage of the client unless the client consents after consultation"; in a situation where the lawyer is called upon to cross-examine a doctor client who is acting as the adversary's expert witness, "there will almost inescapably be a direct adverseness," thus requiring the doctor's consent to handle the cross-examination; "In some instances, a sufficient solution may be to provide for other counsel, also representing the litigation counsel, to deal with the client-witness: where local counsel as well as principal counsel are involved in a litigation, the disqualification applying to one of these will not ordinarily affect the other. In other circumstances, a satisfactory solution may be the retention of another lawyer solely for the purpose of examining the principal lawyer's client." (footnote omitted)).

State courts and bars have dealt with this issue. Some cases and legal ethics opinions focus on the lawyer's duty of loyalty to every client -- thus essentially adopting a per se prohibition on the lawyer cross-examining any current client, even if the lawyer does not possess any material confidential information that the lawyer could use against the client.

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• New York City LEO 2017-6 (8/17/17) (“Subpoenaing a current client on behalf of another current client ordinarily creates a conflict of interest that requires that the attorney obtain informed written consent from both clients. Therefore, an attorney should run a conflict check prior to preparing and issuing a subpoena. Counsel should consider whether limiting the scope of a representation or obtaining informed consent in advance could address any conflict issues at the outset of a representation; in the event these prophylactic measures cannot avoid the conflict, the prospective representation must be declined. Finally, if the need to subpoena a current client arises during the course of a pre-existing attorney-client relationship, counsel may have to withdraw from the representation or make arrangements for the retention of conflicts counsel to conduct the discovery.”; “[W]e draw several conclusions. First, issuing a subpoena to a current client to obtain testimony from that client will ordinarily give rise to a conflict of interest. Obtaining testimony typically inconveniences the witness, involves probing a witness’ recollection, and at times may involve challenging and confronting the witness, any of which a current client may reasonably perceive to be disloyal. But that said, the Committee can envision exceptional situations where subpoenaing a witness will not be directly adverse to the witness. For example, seeking discovery from a current client would not be directly adverse if that client willingly and voluntarily appears in the proceeding to give testimony that is helpful to the lawyer’s other client, particularly where the testimony is discrete and straightforward (e.g., the date when a particular event happened).” (footnote omitted); “Second, it will ordinarily be a conflict of interest for a lawyer to seek to obtain documents via a subpoena to a current client. The production of documents in response to a subpoena very often requires an allocation of resources (time and money) which the subpoenaed party would prefer not to expend. This is all the more so when outside counsel needs to be retained, and the scope of production needs to be negotiated. Again, the Committee can envision circumstances in which service of a subpoena on a current client may not give rise to a conflict of interest -- for example, where a single document (e.g., a cancelled check or an executed version of a contract) is sought.”; “In the exceptional cases where subpoenaing a current client will likely not give rise to a conflict of interest, because the subpoenaed client is not burdened and has no objection, the lawyer’s communications with the subpoenaed client to ascertain that there is no conflict of interest will, as a practical matter, be substantially similar to the communication in which the lawyer seeks and obtains the client’s informed consent (discussed below). Therefore, as a matter of prudence, a lawyer would be well advised to regard all of these situations as involving a conflict of interest.”; “An attorney need not necessarily resort to the drastic step of withdrawal. The ABA has noted that 'a sufficient solution may be to provide for other counsel, also representing the litigation client, to deal with the client-witness . . . .' Id. In other words, with the litigation client’s consent, another lawyer may be retained for the

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limited purpose of taking discovery from the client-witness. Id. Counsel must be mindful of ethical constraints on the permissible interactions with conflicts counsel. Counsel may not pass along to conflicts counsel an already drafted subpoena, or otherwise direct or influence conflicts counsel from behind the scenes. As this Committee has previously noted, in the context of conflicts counsel brought in to litigate claims against a current client, while 'there is no prohibition against the lawyer's recommending or otherwise assisting her client in retaining other counsel . . . [t]he lawyer may not assist, or otherwise participate with, new counsel in litigating against her own client. This means that the lawyer may not instruct the other lawyer or strategize on the best way to proceed.' NYCBA Formal Op. 2001-3 (2001). The conflicted lawyer may, however, provide copies to conflicts counsel of generally relevant information developed in the case, so long as the information is not segregated or otherwise targeted at the other client. Id. ('[T]he overarching and guiding principle should be neutrality toward the firm’s other client . . . [T]he original law firm may not in any way "selectively" disclose or segregate for review or otherwise identify documents that would be 'particularly relevant' to claims against the other client').” (alterations in original) (emphases added)).

• Kim v. True Church Members of Holy Hill Cmty. Church, 187 Cal. Rptr. 3d 515, 528, 531, 531-32, 533 (Cal. Ct. App. 2015) (prohibiting a church's former co-counsel from cross-examining church officials; "When appellant's counsel sought to cross-examine Reverend Suh after respondent's counsel called him during his rebuttal case, the trial court heard appellant's counsel's argument for permitting cross-examination. After confirming that counsel had represented the WCP [Western California Presbytery] earlier in the litigation, it rejected appellant's arguments, stating, 'Once you undertake that representation, the case law makes it pretty clear that you cannot at a later time confront your own witnesses even if you are delegated in part to [co- counsel] Mr. Sohn representation of the WCP. . . . A bright line has to be drawn about clients not being subjected to examination by their counsel or former counsel even at a time period after it's alleged that the representation ceased.'" (internal citation omitted); "The ethical bar against acting in a manner adverse to a former client's interests implicates not just the duty to maintain client confidences, but the duty of loyalty, which counsel would have violated by cross-examining a representative of their former client."; "Although the California Supreme Court has emphasized the duty of maintaining client confidences in successive representation cases . . ., the duty of loyalty also plays a role, as recognized in the long-standing rule that 'an attorney is forbidden to do either of two things after severing his relationship with a former client. He may not do anything which will injuriously affect his former client in any manner in which he formerly represented him nor may he at any time use against his former client knowledge or information acquired by virtue of the previous relationship.'" (citation omitted); "In Hernandez [Hernandez v. Paicius, 109 Cal. App. 4th 452, 467 (2003), the plaintiff initially sought to limit

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cross-examination of the plaintiff's expert witness, on the grounds that the law firm representing the defendant was simultaneously representing the plaintiff's expert in an unrelated matter. The trial court limited the scope of cross- examination to exclude any cases in which defense counsel previously or currently represented the expert. However, the court allowed defense counsel to impeach the expert based on information obtained from the public record, even though the information related to the same cases giving rise to the conflict of interest. . . . We construe the Hernandez opinion as recognizing the crucial role trial courts play in achieving the delicate balance necessary in the exercise of the court's inherent authority, and decline to second-guess the appropriate balance struck by the trial court in this case between appellants' right to retain counsel of their choice and the law firm's duty of loyalty to its former client.").

• North Carolina LEO 2010-3 (1/21/11) (holding that a criminal defense lawyer may not cross-examine a police officer whom the lawyer represents in an unrelated matter; "If Lawyer must cross-examine Officer in Defendant's criminal matter, Lawyer has a concurrent conflict of interest. Comment [6] to Rule 1.7 specifically provides that a directly adverse conflict may arise when a lawyer is required to cross-examine a client who appears as a witness in a lawsuit involving another client, as when the testimony will be damaging to the client who is represented in the lawsuit. Any attempt to discredit Officer's credibility through cross-examination would violate Lawyer's duty of loyalty to Officer. Conversely, the failure to challenge Officer's damaging testimony through rigorous cross-examination would violate Lawyer's duty to competently and diligently represent Defendant. Lawyer cannot cross-examine Officer without the risk of either jeopardizing Defendant's case by foregoing a line of aggressive questioning or breaching a duty of loyalty and/or confidentiality owed to Officer."; "If Lawyer must cross-examine Officer in Defendant's criminal matter, the resultant conflict of interest is nonconsentable."; "In the given fact scenario, Lawyer cannot reasonably conclude that he can protect the interests of each client, or competently and diligently represent each client, if Lawyer must cross-examine Officer in Defendant's criminal matter."; explaining that the lawyer could depose the Officer if he was a former client and any information that the lawyer had acquired from the client was not generally known; "An exception to Rule 1.9(c) provides that a lawyer may use confidential information of a former client to the disadvantage of the former client when the information has become 'generally known.' Rule 1.9(c)(1). If certain information as to the internal affairs investigation is generally known, that information may be used to cross-examine Officer without obtaining the consent of Officer. See Rule 1.9, cmt. [8].").

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• Michigan LEO RI-218 (8/16/94) ("A lawyer may not undertake or continue representation which requires cross-examination of one of the lawyer's own clients as an adverse witness on behalf of another client.").

• Comm. on Legal Ethics v. Frame, 433 S.E.2d 579 (W. Va. 1993) (publicly reprimanding a lawyer who cross-examined one of his clients in another matter).

• North Carolina LEO RPC 72 (10/20/89) (explaining that a town attorney could not cross-examine an arresting officer on behalf of a criminal defendant, because the town attorney "represents the town police department and its employees").

This inability to conduct discovery of clients can result in lawyers' ability to represent an adversary – because of the inherent material limitation on the lawyers' representation of the adversary.

• United States v. Delavan, Crim. A. No. 4:18cr23, 2018 U.S. Dist. LEXIS 194602, at *4-5 (E.D. Va. Nov. 13, 2018) (disqualifying a lawyer from representing a criminal defendant because ten years earlier the lawyer had represented a witness who would be a key prosecution witness; “The Court finds that Kelleter’s continued representation of Defendant represents a serious potential conflict due to his prior representation of Andrews. The Government plans to call Andrews as a witness to prove the existence and extent of a tax fraud and money laundering scheme in which Defendant is alleged to have committed. Thus, at trial, one of Kelleter’s objectives will be to impeach Andrews’ credibility. Kelleter may have obtained material information during his brief representation of Andrews that may impact his cross examination of Andrews during trial. This situation presents a clear conflict between Kelleter’s current representation of Defendant and Kelleter’s duty of loyalty to his former client, Andrews.”).

• Calise v. Brady Sullivan Harris Mills, LLC, Civ. A. Nos. 18-99WES & - 100WES, 2019 U.S. Dist. LEXIS 52563, at *3-4, *4, *5, *6, *19-20, *24-25 & n.18, *25-26, *26-27 (D.R.I. Mar. 28, 2019) (disqualifying a law firm from representing plaintiffs in suing a developer for mold in residences, based on the law firm’s taking on as additional clients former employees of the developer; noting that the law firm could not cross-examine its new client, as might be required to adequately represent the plaintiffs suing the developer. “The pending motion is based on Brady Sullivan’s well-founded assertion that Attorneys Coloian and Calabro accepted as clients two of its former employees, an engagement fraught with undisclosed and unresolved conflicts of interests, as a result of which the Attorneys came into possession of Brady Sullivan’s contractually protected confidential information, attorney-client

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information and related attorney work product (collectively, ‘Confidential Information’) without authorization or consent in violation of Brady Sullivan’s legal rights. Having acted promptly and worked aggressively to stuff the genie back in the bottle, Brady Sullivan now seeks to bring the matter to a close for good with a permanent injunction banning Plaintiffs and Attorneys Coloian and Calabro from using, reviewing, discussing, communicating and/or forwarding the Confidential Information to anyone (including successor counsel) and prohibiting Attorneys Coloian and Calabro from receiving or otherwise participating in any attorneys’ fees associated with the Cases.”; “The Court’s task in resolving the motion is eased by the absence of any dispute over the remedy: Plaintiffs (acting through their new counsel) and Attorneys Coloian and Calabro agree that Brady Sullivan may have the requested relief. The sticking point is whether the Court will issue the permanent injunction based a [sic] reasoned decision that includes findings of fact based on violations of the Rhode Island Rules of Professional Conduct, particularly R.I. Rules 1.7, 4.3 and 4.4(a).”; “As a condition of their employment with Brady Sullivan, both of the former employees signed confidentiality agreements barring them from, inter alia, disclosing certain information related to Brady Sullivan’s products or services. At least one of them, Rahn, was privy to extensive confidential attorney-client communications directly related to the issues in the Cases and related matters pertaining to other tenants and former tenants of Brady Sullivan.”; “Attorneys Coloian and Calabro undertook this engagement and provided legal advice to the former employees despite the obvious conflict between the interests of the former employees and their existing clients, Plaintiffs and other tenants or former tenants of Brady Sullivan contemplating or already in litigation against it.”; “Over several days in March 2018, having formed an attorney-client relationship with the former employees, Attorneys Coloian and Calabro obtained information from Basabe and Rahn. They accepted documents from Rahn that she had secretly taken while employed at Brady Sullivan. Among these documents were many clearly reflecting Brady Sullivan’s attorney-client communications. Attorneys Coloian and Calabro reviewed at least a handful of these documents, which constituted bulls-eye attorney-client communications between Brady Sullivan and its counsel regarding matters directly pertaining to the Cases and related matters.”; “In summary, while there is no barrier to an attorney interviewing or developing evidence from the former employee of a party-opponent, it is a clear violation of R.I. Rule 1.7(a) for an attorney to form an attorney-client relationship with the former employee of a party-opponent without carefully considering and appropriately addressing all conflicts of interest, including all limitations on the attorneys’ ability to simultaneously represent a litigant and the former employee of the party opposing the litigant. It also is a clear violation of R.I. Rule 4.3 for an attorney to give any legal advice to an unrepresented former employee of an opposing party if there is a reasonable possibility of a conflict arising from the attorney’s existing attorney-client relationship with the litigant

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opposing the former employer. And if an attorney communicates with the former employee of an opposing party, R.I. Rule 4.4(a) mandates that the attorney undertaking such communications has an affirmative duty to proceed with due care to ensure that the former employee does not inadvertently or intentionally disclose privileged attorney-client or other confidential information in violation of the legal rights of the opposing party.”; “As a condition of their employment with Brady Sullivan, both of the former employees had signed confidentiality agreements barring, inter alia, the disclosure of certain confidential information related to Brady Sullivan’s products or services; the agreement defined ‘confidential information’ as any business data or information not generally known outside the company. . . . Basabe Dep. at 141-43; Rahn Dep. at 128-30; BS Proposed Facts ¶¶ 14-15. The contractual obligations of Basabe and Rahn under the confidentiality agreements survived the termination of employment with Brady Sullivan. BS Proposed Facts ¶ 16. Rahn was also aware that her employment was subject to the provisions in Brady Sullivan’s employee handbook, which strictly prohibited the unauthorized disclosure of Brady Sullivan’s confidential information. Rahn Dep. at 125-30.”; “It is important to note that the Court has not directly addressed either the enforceability of the confidentiality agreements or what specific factual information known to Basabe and Rahn those agreements rendered confidential. This contrasts with the information taken by Rahn that is protected by the attorney-client privilege. Based on the Court’s in camera review, I find that Rahn wrongly took privileged information protected by Brady Sullivan’s attorney-client privilege and wrongly disclosed privileged information to the attorneys for the directly adverse party.”; “In violation of R.I. Rule 1.7(a) and R.I. Rule 4.3, Attorneys Coloian and Calabro undertook the engagements to represent, and provided legal advice to, the former employees despite conflicts between the interests of the former employees and the concurrent clients of Attorneys Coloian and Calabro, Plaintiffs and the other tenant clients. These conflicts created a significant risk that the representation of the former employees would be materially limited by Attorneys Coloian and Calabro’s representation of Plaintiffs and their other tenant clients, as well as that the representation of Plaintiffs and their other tenant clients would be materially limited by Attorneys Coloian and Calabro’s representation of the former employees. Transcript June 27, 2018, at 11-12; Transcript Dec. 21, 2018, at 5, 11.” (footnotes omitted); “Notwithstanding the requirements of R.I. Rule 1.7(b)(4), Attorneys Coloian and Calabro did not obtain written informed consent from the former employees to the limitations on the Attorneys’ ability to represent the former employees in light of the Attorneys’ concurrent representation of Plaintiffs and their other tenant clients. See BS Proposed Facts ¶¶ 27, 29. Attorneys Coloian and Calabro also did not obtain written informed consent from Plaintiffs and their other tenant clients to the limitations on the Attorneys’ ability to represent Plaintiffs and their other tenant clients in light of the

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Attorneys’ concurrent representation of the former employees. Transcript June 27, 2018, at 86.” (emphases added)).

• Beshah v. Commonwealth, 725 S.E.2d 144, 150 (Va. Ct. App. 2012) (disqualifying a lawyer from representing multiple criminal defendants; "This appeal presents a similar conflict to the one in Johnson [Johnson v. Commonwealth, 50 Va. App. 600, 652 S.E.2d 156 (2007)]. Leffler represented multiple co-defendants, some of whom, as part of a written plea agreement, agreed to testify against other co-defendants. By doing so, Leffler put himself in 'an intractable dilemma.' As an example, if one of Leffler's clients testified against appellant at sentencing or against another other co-defendant at trial, he would be pitting one client against the other, as the trial court correctly observed. Further, a vigorous cross-examination of that client might be in the best interest of appellant or a co-defendant on trial, but may be injurious to the interests of that witness, such as prosecution for perjury. For example, if a co-defendant testified against appellant, he would satisfy the conditions of his plea agreement, but would potentially harm appellant's case. If the co-defendant did not testify against appellant, he would violate the conditions of his suspended sentence. Indeed, when asked how he could vigorously focus on one client's interest to the exclusion of the others, Leffler candidly replied, 'I don't have an answer for that, Judge, I don't.'"; "As the trial court pointed out, a conflict may arise in negotiating plea agreements for other clients. As with Abdul Sesay and Mamusu Sesay, the Commonwealth may very well insist on testimony against co-defendants. Yet such an agreement would be detrimental to other co-defendants who may then be exposed to damaging testimony." (emphases added)).

• California LEO 2011-182 (2011) ("When an attorney discovers at the outset of representation that the attorney must serve a discovery subpoena for production of documents on another current client of the attorney or the attorney's law firm, serving the discovery subpoena is an adverse action such that a concurrent client conflict of interest arises. To represent a client who seeks to serve such a subpoena, the attorney must seek informed written consent from each client, disclosing the relevant circumstances and the actual and reasonably foreseeable adverse consequences to the client providing consent."; "Having defined 'adverse' as 'potential injury,' we are led to the conclusion that serving any type of third-party discovery on a current client is adverse and would violate an attorney's duty of loyalty. . . . '[D]iscovery is coercion' since it entails bringing '[t]he force of law . . . upon a person to turn over certain documents.' . . . Second, propounding discovery on an existing client may affect the quality of an attorney's services to the client seeking the discovery, resulting in a diminution in the vigor of the attorney's discovery demands or enforcement effort. In addition, it is possible the documents sought could expose the client from whom discovery is being sought to claims from the client serving the discovery. Therefore, we

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conclude that Attorney's service of a document subpoena on Witness Client would be an action adverse to Witness Client's interests, and as a result such service would be prohibited absent proper consent." (emphasis added); explaining that the lawyer may obtain consent to engage in a discovery if both clients provide consent after full disclosure (emphasis added)).

• Illinois LEO 09-02 (1/2009) (analyzing the ability of a lawyer to represent a doctor who has been sued along with the doctor's hospital by a plaintiff alleging wrongful death of a newborn baby patient; noting that "Attorney's law firm already represents the Hospital in at least two other unrelated medical malpractice lawsuits. In addition, Attorney represents another physician (3rd Party Physician) who will most likely be a witness against the first physician in a third unrelated medical malpractice lawsuit."; explaining that "[p]rior to his engagement, Attorney was advised that Physician's position in the lawsuit is directly adverse to the Hospital. Physician believed that she acted within the standard of care and that the death was caused by difficulties, in part, with hospital equipment."; later explaining that "[h]ere, Attorney is advised that Physician's position in the lawsuit is directly adverse to the Hospital's position because Physician believes that the injury was caused by an unforeseen difficulty with equipment provided by the Hospital"; "Although Attorney and the law firm are not representing the Hospital in this litigation, the fact that they currently represent the Hospital in other unrelated medical malpractice lawsuits leads to the objective conclusion that when Physician's defense places the blame on the Hospital and its equipment, Attorney's relationship with the Hospital will be adversely affected. Thus, the Rule 1.7(a) conflict with the Hospital remains."; also analyzing the possible conflict between the lawyer's representation of the defendant doctor and the lawyer's current representation of another doctor who might be an adverse witness; "[T]he 3rd Party Physician whom the lawyer currently represents in another matter3 [sic], while not a named defendant in the present lawsuit, took an adversarial position against Physician in the matter shortly after the alleged negligence by reportedly informing the Hospital staff members that, had he been called earlier, he could have safely undertaken the procedure."; "Attorney's ability to effectively cross-examine the 3rd Party Physician and attack his opinions and credibility may materially limit his responsibilities to Physician because his two clients have polar opposite opinions on what went wrong with the procedure in question."; "As for the conflict with the 3rd Party Physician, any attempt by Attorney to discredit the testimony of the 3rd Party Physician will certainly lead to the objective conclusion that Attorney's relationship with the 3rd Party Physician will be adversely affected. Additionally, a disinterested lawyer would undoubtedly conclude that Physician's defense will be adversely affected if Attorney is unable or unwilling to effectively cross-examine the 3rd Party Physician by challenging his opinion, credibility, motive, and bias when, ultimately, such cross examination could adversely affect the 3rd Party Physician's defense in his own medical malpractice lawsuit."; noting that the

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lawyer could not undertake the representation even with the hospital's and other doctor's consent).

One court has taken the inexplicable position that arranging for a subpoena to be served on a client did not amount to adversity sufficient to trigger a conflict, but that filing a motion to compel met that standard.

• In re Suard Barge Servs., Inc., Civ. A. No. 96-3185 c/w 96-3655, 97-0084, 97- 1519 SECTION "R" (1), 1997 U.S. Dist. LEXIS 12364, at *4, *11, *12-13 (E.D. La. Aug. 18, 1997) (holding that a lawyer's third party subpoena for documents to another client was "not directly adverse" to that client, but that the lawyer's later motion to compel and for sanctions amount to the kind of adversity that required the client's consent; "Best [lawyer] subpoenaed Gray [other lawyer client] in the instant litigation, seeking records concerning an earlier, similar accident aboard the same barge when it was owned by GIS. Although Gray initially permitted Best to review all of the subpoenaed records, it later refused to furnish copies of all records. Best then filed a motion to compel against Gray in this Court, in which he argued that Gray was in contempt of court for refusal to comply with the subpoena and he requested sanctions, attorney's fees and costs."; "GIS and Gray moved to disqualify Best from representing Windham because Best allegedly represented Gray in an unrelated matter at the same time as he was representing Windham, and therefore has a conflict of interest, which Gray declines to waive."; "I find insufficient evidence to establish that Best's subpoena was 'directly adverse' to Gray."; "I do not find that the subpoena itself was 'directly adverse to Gray's interests. However, I find that Windham's motion to compel and for sanctions, filed while Best represented both Windham and Gray, was directly adverse to Gray." (emphasis added)).

Other states emphasize the informational nature of the problem.

• Connecticut LEO 99-14 (7/28/99) ("We believe that a lawyer cannot reasonably conclude that cross-examination of another witness-client will not be limited by the duty of loyalty to that other client. The lawyer could not use any information the lawyer knew about the client or the client's interests or biases as part of the cross-examination. Use of just such information is the touchstone of effective cross-examination."; "Because the duty of loyalty would be compromised in relation to the witness-client and the quality of the representation is compromised in relation to the mother-client, neither should be asked to waive the conflict.").

Not surprisingly, a lawyer's ability to cross-examine a former client depends on such an informational analysis.

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• ABA LEO 488 (9/5/19) (Judges must disqualify themselves where "their impartiality might reasonably be questioned." ABA Model Code of Judicial Conduct 2.11(A), lists specific family relationships that automatically meet that standard, but that rule does not provide any guidance on other personal relationships with lawyers that would require their disqualification. Judges must "avoid even the appearance of impropriety in performing their duties," but "are presumed to be impartial." Possible grounds for disqualification is "evaluated against an objective reasonable person standard," and "judicial disqualification is the exception rather than the rule." Personal relationships that might or might not require disqualification can be separated into three categories: (1) acquaintanceships; (2) friendships; and (3) close personal relationships. First, judges have no obligation to disclose their relationship with a party or lawyer who is an "acquaintance." These persons' "interactions outside of court are coincidental or relatively superficial." "[N]either the judge nor the lawyer seeks contact with the other, but they greet each other amicably and are cordial when their lives intersect." Second, judges should disclose (but have discretion to continue presiding over a case if a party objects to the judge's presiding) if one of the parties or lawyers meets the "friendship" standard. That relationship "implies a degree of affinity greater than being acquainted with a person; indeed, the term connotes some degree of mutual affection." Those meeting this standard might include former law colleagues who occasionally meet for a meal, or law school classmates who occasionally communicate with each other. A closer friendship exists if judges and parties or lawyers exchange holiday gifts, "regularly socialize together," regularly interact "because their children are close friends"; "vacation together"; etc. Depending on the degree of friendship, judges may or may not have to disqualify themselves. Third, judges may have to disqualify themselves they have a "close personal relationship" with a party or lawyer. Examples include a romantic involvement (or a desire for such an involvement), a cordial relationship with a divorced spouse, the judge's acting as a "godparent" of a lawyer's or party's child, or vice versa. Judges must disqualify themselves if they have a romantic relationship with a lawyer or party (or desire such a relationship). Judge should "disclose other intimate or close personal relationships" with a party or a lawyer, but have the discretion "to either continue to preside over the proceeding or disqualify himself or herself." In that situation, judges "should put the reasons for the judges' decision to remain on the case or to disqualify himself or herself on the record." Judges subject to possible disqualification "based on a friendship or close personal relationship with a lawyer or party" may seek the parties' waiver of disqualification. Such a waiver "must be put on the record of the proceeding.").

• Illinois LEO 05-01 (1/2006) ("A lawyer may represent a client in a matter unrelated to a prior divorce proceeding in which the lawyer represented former client who now may testify against his current client. However, the

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lawyer may not cross-examine the former client unless it can be done both without using information relating to the prior representation to the disadvantage of the former client and without materially limiting his ability to effectively cross-examine the former client to the detriment of the current litigation client."; "When a lawyer has not clearly terminated the professional relationship with a client at the conclusion of a matter, it could be argued that a lawyer-client relation still exists under the circumstances."; "[I]f the divorce client were still a current client, the lawyer would be prohibited by Rule 1.7(a) from accepting the representation in question."; "Under Rule 1.9(a)(2), it would appear that the lawyer may cross-examine the former client as long as he does not use 'information relating to the representation' of the former client to the 'disadvantage' of that person, unless the information that the lawyer planned to use to attack the testimony of the former client was either subject to permissive disclosure under a specific exception to Rule 1.6, which seems unlikely in this situation, or has become 'generally known.'"; "The rules do not define what information is 'generally known' for this purpose. The concept appears to be borrowed from the law of agency, which also imposes duties of confidentiality upon agents. Comment b to Section 395 of Restatement Second, Agency defines a matter of general knowledge that an agent may use freely without liability to the principal as 'common knowledge in the community.' This definition seems consistent with the purposes of Rules 1.9."; "Finally, if the lawyer is prohibited from conducting the cross- examination of the former client under Rule 1.9, that conflict may not be cured simply by having another lawyer in the same firm conduct it. Under Rule 1.10 on imputed disqualification, if one lawyer in a firm is prohibited from undertaking a representation, so is every lawyer in the firm. See ISBA Opinion No. 90-05 (November 1990). However, the lawyer may consider asking co-counsel (a lawyer from another firm who may be representing a co- party) to conduct the cross-examination. See Swanson v. Wabash, Inc., 585 F. Supp. 1094 (N.D. Ill. 1984). If a co-counsel is not available, the lawyer should seek another, unaffiliated lawyer to conduct the cross-examination.").

As explained above, the ABA has suggested that a lawyer can arrange for another law firm to handle the discovery of one of the lawyer's clients if the lawyer herself could not undertake such a cross-examination.

• ABA LEO 367 (10/16/92) ("In some instances, a sufficient solution may be to provide for other counsel, also representing the litigation counsel, to deal with the client-witness: where local counsel as well as principal counsel are involved in a litigation, the disqualification applying to one of these will not ordinarily affect the other. In other circumstances, a satisfactory solution may be the retention of another lawyer solely for the purpose of examining the principal lawyer's client.").

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Several bars have also suggested this step.

[I]t could even reach the point where the Neighbor Client would have to be cross[-]examined by a member of the law firm. That could perhaps be remedied by having any cross examination handled by another law firm brought in for that purpose.

Philadelphia LEO 2009-7 (7/2009) (analyzing a situation in which a law firm had "for a long period of time" represented the builder of a proposed office building, but learned two weeks before a scheduled zoning presentation that a neighbor of the building

(whom the law firm represented on unrelated matters) opposed the project; explaining the effect of the later-developing conflict; explaining that the law firm had three choices:

(1) withdraw from representing the developer in the project; (2) withdraw from representing the developer in litigation or some other administrative matters in which the neighbor might appear (although the law firm might be able to arrange for some other lawyer to cross-examine the neighbor at any hearing); (3) seek a waiver from the neighbor.).

The Illinois Bar has mentioned the same possible step.

[I]f the lawyer is prohibited from conducting the cross- examination of the former client under Rule 1.9, that conflict may not be cured simply by having another lawyer in the same firm conduct it. Under Rule 1.10 on imputed disqualification, if one lawyer in a firm is prohibited from undertaking a representation, so is every lawyer in the firm. . . . However, the lawyer may consider asking co- counsel (a lawyer from another firm who may be representing a co-party) to conduct the cross- examination. . . . If a co-counsel is not available, the lawyer should seek another, unaffiliated lawyer to conduct the cross-examination.

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Illinois LEO 05-01 (1/2006).1 Thus, bars recognize the theoretical possibility that co- counsel could conduct the discovery.

Several courts have approved this approach.

• Wal-Mart Stores, Inc. v. Vidalakis, Case No. 07-0039, 2007 U.S. Dist. LEXIS 99356, at *5-6, *12, *13-14, *14-15, *15 (W.D. Ark. Dec. 17, 2007) (analyzing a situation in which defendants served a subpoena on non-party Wal-Mart and some of its employees in an action in which Wal-Mart might ultimately be accused of conspiring with plaintiffs in a property issue; considering Wal-Mart a current client of defendants' law firm even though Wal-Mart admitted firing the law firm before moving to disqualify it from handling the discovery against Wal-Mart; ultimately declining to disqualify the firm, but instead allowing it to arrange for co-counsel to handle a discovery dispute with Wal-Mart; "Wal- Mart contends that the Calfee firm should be disqualified from representing the Defendants due to their long-standing attorney-client relationship with Wal-Mart. It alleges that since 2001, Wal-Mart has retained the Columbus office of the Calfee firm to assist them with regard to at least seventy-eight legal matters, seventy-seven of which are environmental or real estate related cases. Although Wal-Mart is not a party to the present litigation, it contends that the Defendants have insinuated that Wal-Mart might have conspired with the Plaintiff regarding this matter. While Wal-Mart admits that it had severed its relationship with the Calfee firm just prior to filing this motion, it contends that it was a current client of the Calfee firm at the time the discovery requests were served. As such, it is Wal-Mart's position that the Calfee firm is representing clients whose interests are directly adverse to one another and that Rule 1.7 of the Arkansas Model Rules of Professional Conduct applies to this matter."; "Although we find no present direct adversity, balancing the interest of all parties involved, we believe that the use of outside independent counsel to handle the depositions, discovery exchange, and all trial issues involving Wal-Mart is the most reasonable solution. As pointed out by the Defendants, the American Bar Association has recognized and approved the use of local counsel to cure a conflict that may arise when counsel serves third party discovery on a client."; "Several federal courts have also approved the use of local counsel or co-counsel to cross-examine former clients of primary counsel as an effective and appropriate cure of any potential conflict and/or to safeguard against the misuse of the client's confidential information. See In re Motion to Quash Deposition Subpoena to Lance Wagar, Case No. 1:06-MC-127, 2006 U.S. Dist. LEXIS 90345, 2006 WL 3699544, *9 (N.D.N.Y. 2006) (Having co-counsel conduct the deposition of a subpoenaed third-party witness, who was a former client of the main defense counsel, is an 'efficacious safeguard' against any potential misuse of confidential information

1 Illinois LEO 05-01 (1/2006), supra note 2.

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acquired in the prior representation); Sykes v. Matter, 316 F. Supp. 2d 630, 633 (M.D. Tenn. 2004) (ruling that it is appropriate to retain another counsel to perform the cross-examination of a former client); Swanson v. Wabash, Inc., 585 F. Supp. 1094, 1097 (N.D. Ill. 1984) (no conflict of interest possible if former client is cross-examined by other counsel)."; "Because both parties are in agreement that a properly erected Chinese wall would protect the interest of all parties in this matter, we believe that a Chinese wall can and should be utilized in order to prevent a conflict of interest from arising. However, a properly erected Chinese wall will require the Arkansas firm have absolutely no exposure to any information of any kind relating to Calfee's prior representation of Wal-Mart, or any information obtained therefrom."; "Although we hold disqualification of the Calfee firm continuing with the representation of Defendants is not mandated at this time, we are mindful that information garnered at deposition may place Defendants and Wal-Mart in adverse positions. In this unlikely event, we simply remind the Calfee firm of their ethical obligations under Rule 1.7. Accordingly, Wal-Mart's motion to disqualify the Calfee firm is hereby DENIED." (emphases added)).

• Sykes v. Matter, 316 F. Supp. 2d 630, 633 (M.D. Tenn. 2004) (explaining that a plaintiff could use "conflicts counsel" to cross examine the other side's expert, who is a former client of the plaintiff's lawyer; "Lacking consent to reveal client confidences, counsel states that the continued participation of Mr. Kopra in this lawsuit leaves them with a Hobson's choice, between utilizing confidential information during cross-examination in violation of ethical duties on the one hand, and failing to zealously represent Mr. Sykes on the other hand, in violation of ethical duties, if potentially damaging confidential information is not so utilized. However, this argument ignores the third alternative that is always available to counsel laboring under, as the motion papers put it, 'an irreconcilable difficulty under the Rules of Professional Conduct': withdrawal from representation. While counsel argues that 'it is basically unfair to require Mr. Sykes or his counsel' to make this choice, inasmuch as this conflict was not of their making, such is the sometimes unfortunate reality of proper practice within the legal profession. However, giving due consideration to Mr. Sykes' substantial interest in retaining and proceeding with counsel of his choice, the undersigned concludes that withdrawal is not required here, inasmuch as the potential for conflict can be removed by allowing plaintiff to retain other counsel for purposes of cross-examining Mr. Kopra at his deposition and at trial.").

One court applied this basic concept to approve a law firm's representation of plaintiffs in patent cases against several defendants – noting that the firm was not participating in strategizing against or taking discovery of one of the defendants which the firm represented in an unrelated matter.

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• Milwaukee Elec. Tool Corp. v. Hilti, Inc., Case Nos. 14-CV-1288-, 1289-, 1290-, 1294-JPS, 2015 U.S. Dist. LEXIS 54717, at *9, *16, *16-17, *19-20 (E.D. Wis. Apr. 27, 2015) (declining to disqualify a law firm from representing various plaintiffs in a group of patent cases against individual defendants that included a law firm client, because the law firm was not participating in adversity to that defendant; "Snap-on argues that DLA Piper must be disqualified from representing the plaintiffs in this litigation. The parties do not dispute that Snap-on is a current client of DLA Piper. And, Snap-on recognizes that DLA Piper is not representing the plaintiffs in the Snap-on Case, No. 14-CV-1296. Nevertheless, Snap-on argues that DLA Piper's representation of the plaintiffs in the related cases creates direct adversity between DLA Piper and Snap-on, which requires disqualification. Thus, the issue before the Court is whether there exists direct adversity between Snap- on and the plaintiffs' positions in the related cases. As discussed in the detail below, although this is a close question, the Court finds no direct adversity and, thus, will deny the motions for disqualification."; "[T]here is no evidence here that DLA Piper has participated in any motion brought by Milwaukee Tool against Snap-on or opposed any motion brought by Snap-on against Milwaukee Tool. . . . [A]lthough Snap-on takes great issue with the logistical issues of future depositions -- suggesting that DLA Piper would be responsible for participating and objecting on behalf of plaintiffs' witnesses for seven-eighths of the questioning while another law firm handled one- eighth . . . -- the Court finds this concern to be speculative at best."; "DLA Piper 'is not involved in attempting to establish wrongdoing by [Snap-on] or seeking a judgment that will directly impact [Snap-on].'. . . Snap-on's products are not at issue in the related DLA Piper cases and the plaintiffs do not allege that the defendants' products infringe because they comply with a technical industry standard. . . . Moreover, there is no evidence that DLA Piper has performed any substantive legal work for Snap-on with respect to the patents at issue in this case."; also noting that the defendant had waited three months to seek the DLA Piper's disqualification (emphases added)) .

However, as a practical matter, this solution may not work. If a lawyer is prohibited from cross-examining a current or former client, the lawyer would not be able to assist co-counsel in preparing for such discovery. Similarly, such a disqualified lawyer presumably would not be able to coordinate with co-counsel, strategize about how the discovery fits into the overall case, etc. It is therefore difficult to see how a lawyer could to anything but hand off the examination to co-counsel and wait to see what co-counsel comes back with. That may be the only solution in some situations,

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but it is not very satisfying -- and at some point the lack of coordination might so

prejudice the current client that the lawyer would find it impossible to carry on the rest of

the representation.

Not many courts have dealt with this issue, but in 2000 the District of New Jersey rejected the possibility of co-counsel handling discovery of the main counsel's client --

reflecting the "real world" difficulties of such an arrangement.

• In re Cendant Corp. Sec. Litig., 124 F. Supp. 2d 235, 241-42, 243 & n.5 (D.N.J. 2000) (denying defendant Ernst & Young's request for a declaration that Paul Weiss lawyer Theodore Wells may represent it in litigation involving Cendant; explaining that Paul Weiss had represented a former Executive Vice President and Deputy General Counsel of Cendant in connection with claims against Cendant; also explaining that Ernst & Young had been represented by Lowenstein Sandler, but that Wells had moved from that firm to Paul Weiss and wished to continue representing Ernst & Young; explaining that Ernst & Young would arrange for co-counsel rather than Wells to conduct any future discovery of Paul Weiss's client; explaining that "[t]he Committee believes that as a general matter examining one's own client as an adverse witness on behalf of another client, or conducting third party discovery of one client on behalf of another client, is likely (1) to pit the duty of loyalty to each client against the duty of loyalty to the other; (2) to risk breaching the duty of confidentiality to the client-witness; and (3) present a tension between the lawyer's own pecuniary interest in continued employment by the client- witness and the lawyer's ability to effectively represent the litigation client. The first two of these hazards are likely to present a direct adverseness of interest falling within Rule 1.7(a); all three may constitute material limitations on the lawyer's representation, so as to come under Rule 1.7(b)."; rejecting the concept that co-counsel could conduct discovery of the former Cendant executive; "Mr. Wells or his colleagues at Paul Weiss at some point will be required to work with co-counsel to develop trial strategy, organize opening and closing arguments, and prepare other aspects of the case."; also explaining that Paul Weiss's large size meant that the proposed firewall might not work; "Furthermore, it is difficult for this Court to believe that the proposed firewall is leak-proof, especially in a firm with over 175 attorneys in the litigation department alone. Presumably, numerous attorneys would be required to assist in trial preparation and discovery for both E&Y and Ms. Lipton. Notwithstanding the good faith efforts of the attorneys to adhere to the firewall, this Court is cognizant that casual conversations in hallways, elevators, and other common areas may take place and may be overheard by the 'screened' attorneys for either E&Y or Ms. Lipton." (emphases added)).

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Best Answer

The best answer to (a) is (B) NO; the best answer to (b) is NO (PROBABLY).

N 3/12; B 8/14

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Positional Adversity

Hypothetical 17

You have represented a bank for several years. It is not your largest client, but has been a steady source of business. On behalf of that client, you normally argue that a particular state statute does not allow a certain type of claim against banks. One of your partners just received a call from a potentially lucrative new corporate client, which is in the midst of litigation with another bank that you have never represented. In that litigation, the company wants to take the position that the state statute does allow such a claim against banks.

May you represent the corporate client in asserting its position on the meaning of the statute (without your bank client's consent)?

(A) YES

(B) NO

(A) YES (PROBABLY)

Analysis

As a profession, lawyers seem to have no trouble taking internally inconsistent

positions -- as when they file alternative pleadings.

Most courts and bars follow this same approach when dealing with what is called

"positional adversity." The ABA Model Rules formerly recognized a bright-line rule

under which it "is ordinarily not improper to assert such [antagonistic] positions in cases

pending in different trial courts, but . . . may be improper to do so in cases pending at

the same time in an appellate court." Ethics 2000 changes adopted a more subtle

approach.

Ordinarily a lawyer may take inconsistent legal positions in different tribunals at different times on behalf of different clients. The mere fact that advocating a legal position on behalf of one client might create precedent adverse to the interests of a client represented by the lawyer in an

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unrelated matter does not create a conflict of interest. A conflict of interest exists, however, if there is a significant risk that a lawyer's action on behalf of one client will materially limit the lawyer's effectiveness in representing another client in a different case; for example, when a decision favoring one client will create a precedent likely to seriously weaken the position taken on behalf of the other client. Factors relevant in determining whether the clients need to be advised of the risk include: where the cases are pending, whether the issue is substantive or procedural, the temporal relationship between the matters, the significance of the issue to the immediate and long-term interests of the clients involved and the clients' reasonable expectations in retaining the lawyer. If there is significant risk of material limitation, then absent informed consent of the affected clients, the lawyer must refuse one of the representations or withdraw from one or both matters.

ABA Model Rule 1.7 cmt. [24].

The Restatement takes the same approach.

• Restatement (Third) of Law Governing Lawyers § 128 cmt. f (2000) (explaining that lawyers "ordinarily may take inconsistent legal positions in different courts at different times," but warning that lawyers may face an ethics issue if this approach will materially and adversely affect another client). In Illustration 5, the Restatement indicates that a lawyer may (without the client's consent) argue in one federal district court case that evidence is admissible, while arguing in another federal district court case that similar evidence is inadmissible, "[e]ven if there is some possibility that one court's ruling might be published and cited as authority in the other proceeding.").

Nationally, courts and bars generally take the same approach.

• Steelworkers Pension Tr. v. Renco Grp., Inc., C.A. No. 16-190, 2016 U.S. Dist. LEXIS 88001, at *19-20 (W.D. Pa. July 7, 2016) (declining to disqualify Proskauer Rose based on the indication that the law firm would be taking position in the current representation that could hurt its other clients; "Based on our review of the record and the arguments of counsel, as well as the factors set forth in Comment 24 of the ABA Model Rules of Professional Conduct, SPT has not met its burden and identified any lawsuit that Proskauer is presently handling in which its clients' interests would be adversely affected if Renco prevailed on its argument as to the effect of the filing of a proof of claim or an 'evade or avoid' theory in these particular circumstances. None of the nine lawsuits revealed by Proskauer were filed

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within the Third Circuit and none involve a contention that defendant has waived its defenses by virtue of having to failed [sic] to assert the defenses in a timely fashion after receipt of proof(s) of claim in bankruptcy. None of the lawsuits involves the adequacy of a withdrawal liability notice at all." (footnote omitted) (emphasis added)).

• District of Columbia LEO 265 (4/17/96) (rejecting an analysis based on "formalities," and instead focusing on a number of factors, "such as: (1) the relationship between the two forums in which the two representations will occur; (2) the centrality in each matter of the legal issue as to which the lawyer will be asked to advocate; (3) the directness of the adversity between the positions on the legal issue of the two clients; (4) the extent to which the clients may be in a race to obtain the first ruling on a question of law that is not well settled; and (5) whether a reasonable observer would conclude that the lawyer would be likely to hesitate in either of her representations or to be less aggressive on one client's behalf because of the other representation. In sum, we believe that the focus of the analysis ought not to be on formalities but should be on the actual harm that may befall one or both clients").

• California LEO 1989-108 (explaining that a lawyer may represent two clients in arguing "opposite sides of the same legal question before the same judge," although warning that "prudent" lawyers will make whatever disclosure the confidentiality rules allow, and obtain both clients' consent before doing so).

As explained above, the ABA Model Rules formerly prohibited lawyers from taking different positions before the same appellate court at the same time. The

Restatement similarly indicates that a lawyer may not (even with consent) take different positions on the legal issue if both cases have been accepted for argument in the

United States Supreme Court. Restatement (Third) of Law Governing Lawyers § 128 illus. 6.

A 2012 article describes an incident involving this issue.

• Tony Mauro, Roberts Takes Solicitor General's Office To Task Over Shifting Positions, Nat'l L. J., Nov. 27, 2012 ("Chief Justice John Roberts Jr. scolded a Justice Department lawyer in open court Tuesday, accusing the solicitor general's office of being less than candid in a brief describing the government's change in position on an issue before the court."; "The rare episode seemed to be a deliberate effort by Roberts to send a message to the solicitor general's office that it may be giving too-short shrift to the tradition of continuity between administrations that the court is accustomed to seeing.

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Solicitor General Donald Verrilli Jr. was in the courtroom and saw the unusual exchange."; "During routine arguments in an ERISA health insurance case titled US Airways v. McCutchen, Roberts zeroed in on footnote 9 in the government's brief, which described a position taken in previous ERISA cases by Bush Administration Secretary of Labor Elaine Chao and then stated that 'upon further reflection . . . the Secretary is now of [a different] view.'"; "Roberts said angrily, 'That is not the reason. It wasn't further reflection. We have a new secretary under a new administration, right?' He was referring to Obama administration labor secretary Hilda Solis."; "Joseph Palmore, the assistant to the solicitor general arguing in the case, agreed, and Roberts continued, 'It would be more candid for your office to tell us when there is a change in position that it's not based on further reflection of the secretary. It's not that the secretary is 'now of the view;' there has been a change. We are seeing a lot of that lately.'"; "When Palmore interjected that the law had changed in the last decade, Roberts replied, 'Then tell us the law has changed. Don't say the secretary is now of the view. It's not the same person. You cite the prior secretary by name, and then you say, the secretary is now of the view. I found that a little disingenuous.'"; "Palmore said, 'Well, I apologize for that,' and soon the discussion turned to other aspects of the case.").

Best Answer

The best answer to this hypothetical is (A) YES (PROBABLY).

N 3/12; B 8/14

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Joint Representations: Basic Rules

Hypothetical 18

Although you generally handle transactional work for several family-owned companies and their owners, you also help some of your clients with their estate planning. The president of one of your corporate clients just called to say that he would like you to prepare a new will for him and his fourth wife. You worry that the president's interests are or will become adverse to her interests.

May you jointly represent the president and his fourth wife in preparing their estate plan?

(A) YES

(B) NO

(A) YES

Analysis

Lawyers can (1) separately represent clients on separate matters (which most

lawyers generally do on a daily basis); (2) separately represent clients on the same matter; or (3) jointly represent clients on the same matter. This hypothetical deals with the third scenario.

Conflicts of interest can arise in any of these contexts. However, lawyers jointly representing clients on the same matter must be especially careful when undertaking and continuing such a joint representation.

ABA Model Rules

The ABA Model Rules identify two issues that lawyers must address when jointly

representing clients on the same matter.

First, lawyers must deal with the issue of loyalty. The loyalty issue itself involves

two types of conflicts of interest -- one of which looks at whether the lawyer's

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representation is directly adverse to another client, and the other of which requires a far more subtle analysis -- because it examines one representation's effect on the lawyer's judgment.

Every lawyer is familiar with the first type of conflict of interest -- which exists if

"the representation of one client will be directly adverse to another client." ABA Model

Rule 1.7(a)(1). At the extreme, this type of direct conflict involves a representation that the ABA Model Rules flatly prohibit. Lawyers can never undertake a representation that involves "the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal." ABA Model Rule

1.7(b)(3). Even if representation does not violate this flat prohibition, adversity might nevertheless create a conflict of interest if a lawyer represents one client "directly adverse" to another client. For instance, a lawyer jointly representing two co- defendants in a lawsuit obviously cannot "point the finger" against one of the clients

(without consent), even if such an argument does not amount to "the assertion of a claim."

Some folks describe this first variety of conflict as a "light switch" conflict, because a representation either meets this standard or it does not. This is not to say that it can be easy to analyze such conflicts. But a lawyer concluding that a representation will be "directly adverse to another client" must deal with the conflict.

The second type of conflict involves a much more subtle analysis. As the ABA

Model Rules explain it, this type of conflict exists if

there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's

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responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

ABA Model Rule 1.7(a)(2) (emphasis added).

This has been called a "rheostat" conflict. Unlike making a "yes" or "no"

determination as required in analyzing the first type of conflict, a lawyer dealing with a

"rheostat" conflict has a more difficult task. The lawyer must determine if some other

duty, loyalty or interest has a "significant risk" of "materially" limiting the lawyer's

representation of a client. This often involves a matter of degree rather than kind. For

example, a lawyer with mixed feelings about abortion might feel awkward representing

an abortion clinic, but would be able to adequately represent such a client. However, a

vehemently pro-life lawyer might well find her representation of such a client "materially

limited" by her personal beliefs. Thus, this second type of conflict requires a far more

subtle analysis than a "light switch" type of conflict arising from direct adversity to

another client.

As with the first of type of conflict, a lawyer dealing with a "rheostat" conflict may

represent a client only if the lawyer "reasonably believes" that she can "provide

competent and diligent representation," the representation does not violate the law, and

each client provide "informed consent." ABA Model Rule 1.7(b).1

Second, lawyers must deal with the issue of information flow. Even if there is no

conflict between jointly represented clients, lawyers must analyze whether they must,

may or cannot share information learned from one jointly represented client with the

other clients.

1 The ABA Model Rules require such consent to be "confirmed in writing," but many states do not. ABA Model Rule 1.7(b)(4).

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Lawyers must deal with a key issue -- loyalty.

A comment to the ABA Model Rules explains the factors that lawyers must consider when determining whether they can undertake a joint representation.

In considering whether to represent multiple clients in the same matter, a lawyer should be mindful that if the common representation fails because the potentially adverse interests cannot be reconciled, the result can be additional cost, embarrassment and recrimination. Ordinarily, the lawyer will be forced to withdraw from representing all of the clients if the common representation fails. In some situations, the risk of failure is so great that multiple representation is plainly impossible. For example, a lawyer cannot undertake common representation of clients where contentious litigation or negotiations between them are imminent or contemplated. Moreover, because the lawyer is required to be impartial between commonly represented clients, representation of multiple clients is improper when it is unlikely that impartiality can be maintained. Generally, if the relationship between the parties has already assumed antagonism, the possibility that the clients' interests can be adequately served by common representation is not very good. Other relevant factors are whether the lawyer subsequently will represent both parties on a continuing basis and whether the situation involves creating or terminating a relationship between the parties.

ABA Model Rule 1.7 cmt. [29] (emphases added). Thus, lawyers should consider

whether adversity already exists, and the likelihood that it will arise in the future.

Lawyers concluding that they can enter into a joint representation (because

adversity is not inevitable) have three basic options.

First, they can say nothing to their clients -- and deal with any adversity if it

develops. Because there is no conflict until such adversity develops, there is no need

for disclosure and consent. The advantage of this approach is that the lawyer is more

likely to obtain the business. The disadvantage is that all of the clients will be

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disappointed if adversity develops -- and might feel that the lawyer has been deceitful by not advising them of that possibility.

Second, the lawyer can salute the possibility of adversity, and advise the clients that they (and the lawyer) will have to deal with adversity if it ever develops. This has the advantage of warning the clients that they might have to address adversity, but of course leaves the outcome of any adversity uncertain.

Third, a lawyer can very carefully describe in advance what will happen if adversity develops. In most situations, the lawyer will have to drop all of the clients.

ABA Model Rule 1.7 cmt. [29] ("Ordinarily, the lawyer will be forced to withdraw from representing all of the clients if the common representation fails."). In certain limited situations, the clients might agree in advance that the lawyer will continue representing one of the clients and drop the other clients -- although there is rarely absolute certainty about that strategy working. The advantage of this approach is that the clients and the lawyer will know in advance what is likely to happen if adversity develops. The disadvantage of this approach is that the lawyer must describe this "parade of horribles" to the clients in advance -- and therefore may frighten away the potential clients.

Restatement

The Restatement takes the same basic approach to conflicts as the ABA Model

Rules. Restatement (Third) of Law Governing Lawyers §§ 121, 128 (2000).

The Restatement contains a separate provision dealing with joint representations in a "nonlitigated matter."

Unless all affected clients consent to the representation under the limitations and conditions provided in § 122, a lawyer may not represent two or more clients in a

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matter not involving litigation if there is a substantial risk that the lawyer's representation of one or more of the clients would be materially and adversely affected by the lawyer's duties to one or more of the other clients.

Restatement (Third) of Law Governing Lawyers § 130 (2000).

A comment provides some additional guidance.

When multiple clients have generally common interests, the role of the lawyer is to advise on relevant legal considerations, suggest alternative ways of meeting common objectives, and draft instruments necessary to accomplish the desired results. Multiple representations do not always present a conflict of interest requiring client consent . . . . For example, in representing spouses jointly in the purchase of property as co-owners, the lawyer would reasonably assume that such a representation does not involve a conflict of interest. A conflict could be involved, however, if the lawyer knew that one spouse's objectives in the acquisition were materially at variance with those of the other spouse.

Id. cmt. c.

The Restatement then provides several illustrations of how the duty of loyalty plays out in a trust and estate setting in which a lawyer wants to represent a husband and wife.

The first illustration involves a situation in which the lawyer knows both spouses and believes that their interests are aligned.

Husband and Wife consult Lawyer for estate-planning advice about a will for each of them. Lawyer has had professional dealings with the spouses, both separately and together, on several prior occasions. Lawyer knows them to be knowledgeable about their respective rights and interests, competent to make independent decisions if called for, and in accord on their common and individual objectives. Lawyer may represent both clients in the matter without obtaining consent . . . . While each spouse theoretically could make a distribution different from the other's, including a less generous bequest to each other, those possibilities do not

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create a conflict of interest, and none reasonably appears to exist in the circumstances.

Id. illus. 1 (emphasis added).

The second Restatement illustration explains the lawyer's duty if one of the spouses appears to be overbearing, and the lawyer senses a disagreement about the spouses' estate objectives.

The same facts as in Illustration 1, except that Lawyer has not previously met the spouses. Spouse A does most of the talking in the initial discussions with Lawyer. Spouse A does most of the talking in the initial discussions with Lawyer. Spouse B, who owns significantly more property than Spouse A, appears to disagree with important positions of Spouse A but to be uncomfortable in expressing that disagreement and does not pursue them when Spouse A appears impatient and peremptory. Representation of both spouses would involve a conflict of interest. Lawyer may proceed to provide the requested legal assistance only with consent given under the limitations and conditions provided in § 122.

Id. illus. 2 (emphasis added). Section 122 of the Restatement explains that a lawyer facing this situation must obtain informed consent after providing "reasonably adequate information about the material risks of such [joint] representation." Restatement (Third) of Law Governing Lawyers § 122(1) (2000).

The third illustration in the series involves spouses who might disagree about their estate objectives, but seem to be intelligent and independent enough to provide the lawyer adequate direction.

The same facts as in Illustration 1, except that Lawyer has not previously met the spouses. But in this instance, unlike in Illustration 2, in discussions with the spouses, Lawyer asks questions and suggests options that reveal both Spouse A and Spouse B to be knowledgeable about their respective rights and interests, competent to make independent decisions if called for, and in accord on their

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common and individual objectives. Lawyer has adequately verified the absence of a conflict of interest and thus may represent both clients in the matter without obtaining consent (see § 122).

Restatement (Third) of Law Governing Lawyers § 130 cmt. c, illus. 3 (2000) (emphasis

added). In that situation, the lawyer can proceed to jointly represent the husband and

wife, with disclosure and consent.

Thus, the Restatement essentially follows the ABA Model Rules approach, but

provides very useful examples that can guide lawyers' analysis of whether they can

undertake a joint representation on the same non-litigated matter.

ACTEC Commentaries

Given the frequent joint representation of spouses or other family members in trust and estate planning work, it should come as no surprise that the ACTEC

Commentaries extensively deal with a lawyer's responsibility for analyzing the propriety of such a joint representation.

Like the ABA Model Rules and the Restatement, the ACTEC Commentaries

warn lawyers that they must assess the likelihood of adversity before undertaking a joint

representation.

A lawyer who is asked to represent multiple clients regarding related matters must consider at the outset whether the representation involves or may involve impermissible conflicts, including ones that affect the interests of third parties or the lawyer's own interests.

American College of Trust & Estate Counsel, Commentaries on the Model Rules of

Professional Conduct, Commentary on MRPC 1.7, at 92 (4th ed. 2006),

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http://www.actec.org/Documents/misc/ACTEC_Commentaries_4th_02_14_06.pdf

(emphasis added).

For obvious reasons, a lawyer may not undertake a joint representation if serious adversity exists from the beginning.

Some conflicts of interest are so serious that the informed consent of the parties is insufficient to allow the lawyer to undertake or continue the representation (a "non-waivable" conflict). Thus, a lawyer may not represent clients whose interests actually conflict to such a degree that the lawyer cannot adequately represent their individual interests. A lawyer may never represent opposing parties in the same litigation. A lawyer is almost always precluded from representing both parties to a pre-nuptial agreement or other matter with respect to which their interests directly conflict to a substantial degree. Thus, a lawyer who represents the personal representative of a decedent's estate (or the trustee of a trust) should not also represent a creditor in connection with a claim against the estate (or trust). This prohibition applies whether the creditor is the fiduciary individually or another party. On the other hand, if the actual or potential conflicts between competent, independent parties are not substantial, their common interests predominate, and it otherwise appears appropriate to do so, the lawyer and the parties may agree that the lawyer will represent them jointly subject to MRPC 1.7 or act as an intermediary pursuant to former MRPC 2.2 (Intermediary).

Id. at 93 (emphases added).

The presence of some adversity does not automatically preclude a lawyer from at

least beginning a joint representation.

Subject to the requirements of MRPCs 1.6 and 1.7 (Conflict of Interest: Current Clients), a lawyer may represent more than one client with related, but not necessarily identical, interests (e.g., several members of the same family, more than one investor in a business enterprise). The fact that the goals of the clients are not entirely consistent does not necessarily constitute a conflict of interest that precludes the same lawyer from representing them. See ACTEC

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Commentary on MRPC 1.7 (Conflict of Interest: Current Clients). Thus, the same lawyer may represent a husband and wife, or parent and child, whose dispositive plans are not entirely the same.

American College of Trust & Estate Counsel, Commentaries on the Model Rules of

Professional Conduct, Commentary on MRPC 1.6, at 75 (4th ed. 2006), http://www.actec.org/Documents/misc/ACTEC_Commentaries_4th_02_14_06.pdf

(emphasis added).

Not surprisingly, lawyers must monitor possible later adversity.

The lawyer must also bear this concern [possible "impermissible conflicts"] in mind as the representation progresses: What was a tolerable conflict at the outset may develop into one that precludes the lawyer from continuing to represent one or more of the clients.

American College of Trust & Estate Counsel, Commentaries on the Model Rules of

Professional Conduct, Commentary on MRPC 1.7, at 92 (4th ed. 2006), http://www.actec.org/Documents/misc/ACTEC_Commentaries_4th_02_14_06.pdf.

Thus, the ACTEC Commentaries recognize both a spectrum of adversity, and the possibility that the adversity might increase or decrease over time.

Commentary, Legal Ethics Opinions and Case Law

Articles frequently warn lawyers of the risks of such joint representations.

• Ralph A. Catalano, Ethical Obligations (and Hazards) of Representing Co- Defendants In Medical Malpractice Lawsuits, N.Y.L.J., Sept. 27, 2018 ("It is not unusual for a medical malpractice lawsuit to involve a host of defendants. A quick glance at the med mal docket in just about any venue bears this out. Not uncommonly these cases will include hospitals, physicians, nurses, other health care professionals, and their various practice affiliations. There may be a number of reasons for this phenomenon. Certainly the extent of the damages sought in these cases might be one factor—more defendants typically mean more financial accountability. But strategic considerations may also play a role: the comparative ease of securing discovery from party- defendants as opposed to non-parties, or the potential for exploiting finger-

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pointing among discordant defendants. Whatever the cause or causes, single-party medical malpractice lawsuits have become rare enough that the very concept almost seems quaint."; "Another examination of that docket reveals something else again: common legal representation shared by many of the defendants. The reasons for this are understandable enough. In the first place, there are not many insurance carriers that provide physicians malpractice coverage in New York. Presently only five insurers are authorized to provide the coverage, and of these, three have the lion’s share of the market. Some defendants will inevitably find themselves with common insurers, or perhaps have common coverage under a single policy through their employment or practice affiliation. And the insurer, confronted with defense obligations to many parties in one lawsuit, may find the economic and strategic value of a common legal defense to be an appealing option.").

• Andrew Strickler, Tag-Along Clients Carry Conflict Risks, Experts Warn, Law360, Apr. 21, 2017 ("Obliging a longtime client’s request to take on a short-term piece of business for another company may seem like a good way to build the primary relationship, but such 'accommodation clients' also carry often-overlooked conflict risks, a panel of legal liability specialists said Friday."; "Rather than treat the tag-along client as 'true and independent,' too many firms fail to do a thorough conflict screening for the new client, most often through a joint defense agreement, Anne Thar, deputy general counsel at Sidley Austin LLP, said at a morning discussion at the American Bar Association’s National Legal Malpractice Conference in Boston."; "In other instances, firms acquiesce to an important client’s request to take on one of their investors or vendors as part of a joint defense matter, but then fail to secure a detailed agreement limiting the representation to that case alone, she said.").

Not surprisingly, legal ethics opinion often focus on the same risks.

• New York City LEO 2019-4 (5/6/19) (explaining loyalty and information flow aspects of their acting as “pool counsel” for several witnesses, typically during a government investigation or corporate internal investigation; explaining that such “pool counsel” represent “multiple individuals concurrently but separately,” and “where there is no expectation that the clients will coordinate strategy or decision-making with one another”; recognizing that there may be serious conflicts, for example, "if there is a likelihood that one client will testify adversely to the interests of another,” or “if a potential client is a 'target' of the investigation—meaning that a prosecutor considers him or her to be a ‘putative defendant’” —in which case “that person will need a separate lawyer as a general matter”; noting that with “pool counsel,” “factual communications about the matter between counsel and multiple concurrently represented individuals clients are typically conducted individually, rather than jointly”; listing the type of disclosure that’s “pool counsel” will have to make to all of

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the clients, including: “• The identity of all other clients in the pool; • The lawyer’s ongoing obligation to monitor the multiple representation for conflicts after it commences; • How the lawyer will handle the client’s confidential information, including that the client’s consent to the attorney’s use of confidential information for the clients’ mutual benefit will not be revocable . . . ; • How the attorney-client privilege will function between and among the concurrently represented clients; • How a conflict of interest among the clients will be handled, should one be discovered after the representation begins . . . ; • That if the corporation (or another third party) will be paying the lawyer’s fees, the client must give informed consent to this arrangement as well as to the multiple representation; • That the client may benefit from consulting with a separate lawyer for advice specifically on the question of whether to be represented by pool counsel.” (footnotes omitted); also explaining that “a client might give informed consent, in advance, that if two clients’ differing recollections make it impossible for the attorney to represent both clients competently in the same matter, the lawyer may opt to represent on particular client rather than withdrawing from both representations”; still explaining that "pool counsel" should insist on clients allow "pool counsel" to "use" but perhaps not "disclose" confidential information obtained from client; noting that “the client’s authorization will not be revocable, even if the client terminates the representation, because the client’s information cannot be unlearned, and the lawyer could not practically continue representing the other pool clients without using all the relevant information obtained in the multiple representations”; warning that such "pool counsel" may have to drop one or more clients if conflicts develop and providing an example of clients whose memories of an event are "materially different," in which case “the lawyer must determine whether the difference is easily explainable by the vagaries of memory, or whether the difference is so great that one or the other client’s credibility is threatened to the potential prejudice of that client in the eyes of the investigator.”).

• New York City LEO 2016-2 (7/22/16) ("An attorney is ethically permitted to represent a non-party witness at a deposition in a proceeding where that same attorney also represents a party, subject to the following limitations. First, such a representation may constitute a limited scope representation under Rule 1.2(c). If so, the attorney must ensure that any limitations on the scope of representation are reasonable under the circumstances and must secure informed consent from the witness-client. Second, the attorney must evaluate whether representing the witness-client creates a conflict of interest with the party-client. If so, the attorney must determine whether the conflict is waivable and secure written conflict waivers before proceeding with the representation. The attorney also must continue to monitor the representation to ensure that appropriate steps are taken if a conflict of interest arises later in the proceeding. Third, the attorney must explain that both clients in a joint representation are entitled to receive information that is

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material to the representation. Thus, if one of the joint clients discloses confidential information to the lawyer that is material to the representation of the other joint client, the lawyer is obligated to share that information with the other client, unless an exception applies or the clients agree to a different arrangement. Fourth, when communicating with the deposition witness about the prospective representation, the attorney must comply with the ethical rules governing solicitation of clients."; "Given the variety of considerations that may go into analyzing the reasonableness of a limited scope representation, the Committee cannot offer a bright-line rule. Below are some of the factors an attorney may need to consider in determining whether the limited scope representation is reasonable under the circumstances: Whether the witness faces potential liability for her own conduct in connection with underlying events and whether the attorney plans to advise the witness on those risks; The sophistication of the witness and her experience with legal matters generally and deposition procedures in particular; Whether the attorney believes sufficient time has been allocated to prepare the witness's testimony; Whether the witness is sophisticated or experienced enough to handle the excluded tasks herself. For example, if document collection is excluded, is the witness capacity of searching for and identifying responsive documents to the subpoena without the attorney's assistance?; Assuming the party-client is paying for the witness's legal fees, whether the party-client has placed any conditions on the payment of those fees and what those conditions are; Assuming the party-client is paying the witness's legal fees, whether the party-client has sufficient financial resources to enable the lawyer to devote the necessary time to the representation of the witness; Whether there is reason to believe that the witness is being subjected to (or may be vulnerable to) undue pressure from the party-client regarding the witness's testimony; Whether the witness has access to separate counsel to advise her on matters that are excluded from the representation." (footnotes omitted); "To meet Rule 1.2(c)'s requirements when representing a witness solely for the purposes of a deposition an attorney should, at a minimum, disclose the following information: What services are included in the representation (see supra at Part I.A discussing the services that may be involved in representing non-party deposition witnesses); What services are excluded from the representation (see id.); The implications of excluding certain services from the representation, such as the possible need to retain separate counsel to advise on those matters and the risk that the witness may face liability or other consequences if she does not secure legal advice with respect to an excluded service; Who will be responsible for paying the lawyer's fees; The identity of the attorney's other client(s) in the matter; Whether there are any conflicts of interest between the witness and the lawyer's other client(s) and the implications of those conflicts of interest (see infra at Part II for further discussion regarding conflicts of interest); What will happen if a conflict of interest arises in the future, including who the attorney will continue to represent (see id.); How confidential information will be treated in connection

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with the joint representation (see infra at Part III for further discussion of confidential information); That the witness is not required to accept the limited scope representation and is free to retain separate counsel."; "It is critical for lawyers to explain to both clients that the duty of confidentiality operates differently in a joint representation than it does in a single-client representation. Under Rule 1.6, an attorney must not 'knowingly reveal confidential information' or 'use such information to the disadvantage of a client or the advantage of the lawyer or a third person,' unless an exception applies. As a consequence, the client can reasonably expect that her communications with her attorney will not be disclosed to third parties. In a joint representation, however, that expectation of confidentiality is significantly circumscribed. Among joint clients, there is a presumption that confidential information that is material to the joint representation will be shared among the joint clients, unless some exception applies. See R. 1.7, Cmts. [30]-[31]; NYSBA Ethics Op. 1070 (discussing the presumption that client confidences are shared in joint representation but noting exceptions 'where disclosure would violate an obligation to a third person or where the lawyer has promised confidentiality with respect to disclosure'). The presumption of shared confidences exists, 'because the lawyer has an equal duty of loyalty to each client, and each client has the right to be informed of anything bearing on the representation that might affect that client's interests and the right to expect that the lawyer will use that information to that client's benefit.' R. 1.7 Cmt. [31] (citing Rule 1.4, which governs the duty to communicate with clients)."; "Importantly, this presumption of shared confidences applies only to confidential information received from one joint client that is material to the other joint client's representation. Therefore, in our scenario, the lawyer is not necessarily obligated to share all confidential information he receives from the party-client with the witness-client. He is only obligated to share information that is material to the lawyer's representation of the witness-client for the purposes of her deposition. Confidential information that relates generally to the litigation, but is not material to the deponent's representation, is not subject to the presumption of shared confidences and need not be shared with the witness-client. Unless the clients are particularly sophisticate in legal matters, it is likely that they will be aware of the presumption of shared confidences. Accordingly, before undertaking the joint representation, 'the lawyer should advise each client that information will be shared and that the lawyer will have to withdraw if one client decides that some matter material to the representation should be kept from the other.' R. 1.7, Cmt. [31]. The lawyer should also explain that 'the prevailing rule is that, as between commonly represented clients, the privilege does not attach.' R. 1.7, Cmt. [30]. Thus, if there is a subsequent litigation between the two clients, it should be assumed that the privilege will not protect attorney-client communications that took place during the joint representation."; "Although the presumption of shared confidences is the default rule, that rule may be modified by agreement with the clients, under certain circumstances. R. 1.7,

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Cmt. [31]. Thus, the clients may agree that the attorney will not share certain confidential communications between the two joint clients, provided this limitation on shared confidentiality does not preclude the attorney from providing competent and diligent representation to both clients. See R. 1.7, Cmt. [31]. Lawyers who choose to represent deposition witnesses would be wise to avail themselves of this contractual option, by obtaining the witness's informed consent not to receive confidential communications that the party- client shares with the attorney about the case. If the attorney is unable to secure the witness's informed consent to this limitation, he should seriously consider declining the representation. Otherwise, the lawyer could find himself in a situation where the party-client instructs him not to share confidential information that the lawyer believes is material to the witness- client. If that occurs, the lawyer may be forced to withdraw from both representations. See R. 1.7, Cmt. [31]."; "A thornier issue is whether the attorney should agree not to share confidential information that he receives from the witness-client with the party-client. One of the risks of such an arrangement is that the witness may disclose confidential information to the attorney that would have a significant adverse effect on the party-client or on the case itself. Under those circumstances, the attorney would be prohibited from disclosing that information to the party-client and may be forced to withdraw from one or both of the representations. In light of this potential farm to the party-client, a lawyer should agree to withhold confidential information from the party-client only in rare circumstances, and only after the lawyer has explained to the party-client the significant tasks of such an arrangement."; "Attorneys seeking to represent a non-party witness should take certain precautions to avoid running afoul of Rule 7.3. One option is for the party-client to communicate with the non-party witness in the first instances to make them aware that the services of counsel are available. If the witness agrees to speak with the attorney in response to such an offer, any communication with the attorney after that would not constitute solicitation. During that initial meeting with the witness, the attorney should assess whether both clients' interests would be best served by joint representation and whether any conflicts of interests exist, before offering to represent the witness.").

Courts also address joint representations – reaching differing conclusions when an adversary seeks to disqualify joint clients' lawyer at the start of such a joint representation.

• Fanning v. John A. Sheppard Mem’l Ecological Reservation, Inc., Civ. A. No. 2:18-cv-01183, 2018 U.S. Dist. LEXIS 183715 at *6-7, *7 n.1, *7, *8, *9, *10- 11 (S.D. W. Va. Oct. 26, 2018) (disqualifying a law firm from representing a corporation, some of its board members and another company, all of whom

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were named as defendants in a non-derivative action; “As an initial matter, the court finds that there is a significant risk that Counsel’s representation of both JASMER and the Board Members will be materially limited by Counsel’s responsibilities to each client, triggering the requirements of Rules 1.7(b) and 1.13(f). The plaintiffs’ Complaint alleges that, acting as directors, the Board Members engaged in conduct directly harmful to the corporate interests of JASMER in violation of their fiduciary duties. The plaintiffs allege, inter alia, that the Board Members failed to preserve JASMER’s 501(c)(3) status, allowed the net earnings of JASMER to inure to their own benefit, and approved a lease with Big Laurel that is burdensome to JASMER. In short, the Complaint’s numerous allegations of wrongdoing pit the Board Members and JASMER against one another. Comment 14 to Rule 1.13 acknowledges such representation may create a conflict of interest: ‘[I]f the claim involves serious charges of wrongdoing by those in control of the organization, a conflict may arise between the lawyer’s duty to the organization and the lawyer’s relationship with the board.’ Nevertheless, pursuant to Rules 1.7 and 1.13, Counsel can represent both JASMER and the Board Members if two requirements are met: Counsel must (1) reasonably believe that it can provide competent and diligent representation to each affected client and (2) obtain informed consent, confirmed in writing, from each affected client.” (alteration in original) ( footnote omitted); “Comment 14 to Rule 1.13 describes conflicts in derivative actions, but the recognition of a conflict between an organization’s board and the organization itself is equally applicable here.”; “The court need not address whether Counsel’s belief that it can competently and diligently represent both clients is reasonable, as Counsel has failed to properly obtain JASMER’s informed, written consent to the joint representation. When a lawyer represents both an organization and its directors and Rule 1.7 requires the organization’s consent, 'the consent shall be given by an appropriate official of the organization other than the individual who is to be represented, or by the shareholders.' (emphasis added). W. Va. R. Prof’l Conduct 1.13(f).”; “Having reviewed the defendants’ engagement agreements, I find that JASMER has failed to provide informed, written consent to the conflict as required by the Rules of Professional Conduct.”; “JASMER’s engagement agreement fails to mention the conflict of interest resulting from Counsel’s joint representation of JASMER and several of the Board Members.”; “JASMER’s purported consent to the conflict is also deficient under Rule 1.13(f). JASMER’s engagement agreement was signed only by a Board Member represented by defense Counsel. When a lawyer represents both an organization and its directors, Rule 1.13(f) requires consent to be given by an official of the organization other than the individual who is to be represented. Nor do the defendants argue that JASMER’s shareholders have consented to the conflict.”; “Here, despite the existence of a conflict between JASMER and the Board Members, Counsel filed pleadings and documents on behalf of JASMER and the other defendants without having obtained JASMER’s informed consent. Per Rule 1.7, JASMER’s

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consent to the conflict cannot be procured at a special meeting months after the conflict came into existence (or months after Counsel filed pleadings and documents on the defendants’ behalf).”).

• Simms v. Deggeller Attractions, Inc., Case Nos. 7:12-cv-00038, 00039 & 00161, 2013 U.S. Dist. LEXIS 448, at *29-30, *31-32, *32, *33 n.15 (W.D. Va. Jan. 2, 2013) (denying a motion to disqualify a lawyer from representing three plaintiffs, despite their differing interests; concluding that two of the plaintiffs represented by the lawyer could not make a claim against the other plaintiff because of their previous statements; "Here, Plaintiffs' counsel has obtained a written waiver of any possible conflict from all three Plaintiffs, and those waivers adequately and clearly inform Plaintiffs of the potential risks of the concurrent conflict. Moreover, the representation does not violate subsection (4) of Rule 1.7, since it does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation. Accordingly, this Court's inquiry focuses on subsections (1) and (3): (1) 'whether the lawyer reasonably believes he can provide competent and diligent representation to the clients' and (3) whether the representation is otherwise lawful."; "In making this determination, however, the Court acknowledges the cautionary advice of the Fourth Circuit and other district courts that any disqualification must be based on a finding of an actual present conflict between the positions taken by the two clients and not on 'conjecture' or the 'mere possibility of a conflict.' Richmond Hilton Assocs. v. City of Richmond, 690 F.2d 1086, 1089 (4th Cir. 1982); Tessier v. Plastic Surgery Specialists, 731 F. Supp. 724 (E.D. Va. 1990) ('the disqualification of a party's chosen counsel is a serious matter which cannot be based on imagined scenarios of conflict') (citing Richmond Hilton Assocs.). Moreover, '[t]he drastic nature of disqualification requires that courts avoid overly- mechanical adherence to disciplinary canons at the expense of litigants' rights freely to choose their counsel . . . .' Shaffer v. Farm Fresh, Inc., 966 F. 2d 142, 146 (4th Cir. 1992). Thus, while in a close case, doubts are to be resolved in favor of disqualification, United States v. Clarkson, 567 F.2d 270, 273 n.3 (4th Cir. 1977), 'some stronger objective indicator . . . than simple judicial intuition is needed to warrant the drastic step of disqualification of counsel.' Shaffer, 966 F.2d at 145." (alterations in original); "In this case, the Court concludes that the multiple representation of all three plaintiffs is permissible because, under the specific facts of this case, Plaintiffs' interests do not conflict. In particular, the Court finds significant the factual admissions made by the Plaintiffs in their affidavits, which likely bar any recovery against Roseberry, thus eliminating any potential conflict of interest."; "Thus, assuming Massie [Massie v. Firmstone, 134 Va. 450, 114 S.E. 652, 656 (Va. 1922)] applies to a pre-trial affidavit, Simms and Goad would both be barred from recovering against Roseberry based on their own affidavits, since they clearly state that Roseberry's hat came off before the collision and landed on the ground. Even if the Court credited Simms' alleged statement to police

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instead, which was that the hat came off as a result of the collision, Roseberry's hat could not have contributed to the collision under either scenario. Thus, assuming Massie is applicable to their affidavits, neither plaintiff can rise above their own testimony to recover against Roseberry, even if they had directly asserted a claim against him, which they have not." (footnote omitted); "'At oral argument, Deggeller's counsel posited that the mere giving of the affidavits while jointly represented (which likely result in a Massie bar of any claim by Simms or Goad against Roseberry) is illustrative of the conflict inherent between the parties. But the Court notes that even the accounts allegedly given to the police from the hospital on the evening of the accident by both Simms and Goad (which, as to Simms, differs from their affidavits) indicated that Rosenberry's hat played no role in the accident. Notably, there is no indication in the record that any of the plaintiffs had spoken with counsel at that time. Moreover, the fact that the three plaintiffs were represented by the same counsel at the time they executed their affidavits under oath does not alter the Court's analysis.'").

• Beshah v. Commonwealth, 725 S.E.2d 144, 150 (Va. Ct. App. 2012) (disqualifying a lawyer from representing multiple criminal defendants; "This appeal presents a similar conflict to the one in Johnson [Johnson v. Commonwealth, 50 Va. App. 600, 652 S.E.2d 156 (2007)]. Leffler represented multiple co-defendants, some of whom, as part of a written plea agreement, agreed to testify against other co-defendants. By doing so, Leffler put himself in 'an intractable dilemma.' As an example, if one of Leffler's clients testified against appellant at sentencing or against another other co-defendant at trial, he would be pitting one client against the other, as the trial court correctly observed. Further, a vigorous cross-examination of that client might be in the best interest of appellant or a co-defendant on trial, but may be injurious to the interests of that witness, such as prosecution for perjury. For example, if a co-defendant testified against appellant, he would satisfy the conditions of his plea agreement, but would potentially harm appellant's case. If the co-defendant did not testify against appellant, he would violate the conditions of his suspended sentence. Indeed, when asked how he could vigorously focus on one client's interest to the exclusion of the others, Leffler candidly replied, 'I don't have an answer for that, Judge, I don't.'"; "As the trial court pointed out, a conflict may arise in negotiating plea agreements for other clients. As with Abdul Sesay and Mamusu Sesay, the Commonwealth may very well insist on testimony against co-defendants. Yet such an agreement would be detrimental to other co-defendants who may then be exposed to damaging testimony.").

• Sanford v. Virginia, 687 F. Supp. 2d 591, 603, 604, 605 (E.D. Va. 2009) (finding an insoluble conflict and disqualifying a lawyer who had obtained several defendants' consent to represent all of them; concluding that the defendants' blaming each other for contributing to a prisoner's death at a

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medical facility prevented the same lawyer from representing multiple defendants despite the clients' consent, because no reasonable disinterested lawyer would have sought a consent; “[T]he conflicts that are presented here are real conflicts. They exist now and they have existed throughout the course of the case. They have significant impact on the conduct of the trial respecting how best to serve the interests of the individual defendants who are affected by the extant conflicts.”; “Furthermore, the conflicts here raise the serious prospect that the trial could fall into disarray. This prospect has actually manifested itself in the motions for summary judgment presented by the defendants and in the presentation of expert testimony, including several contentions of law and opinion favoring the interest of one defendant while presenting the prospect of real harm to others.”; “It is obvious from reviewing the motions for summary judgment and the expert opinions that counsel, both for the VCUPD officers and the VCU medical defendants, have staked out defensive positions that they think are the best positions for the defense side of the case considered as a whole. It does not appear, however, that counsel have considered, or that they appreciate, how the assertion of those positions could affect the ability of each individual defendant to defend herself or himself by presenting arguments that other defendants are really responsible for Sanford's tragic death even though another defendant may have had some involvement in the circumstances leading up to that death. Nor do the summary judgment papers indicate that these potential individual defenses have been developed or pursued.”; “Counsel for each group of defendants asserts that disqualification is not required because all of the defendants have consented to multiple representations. It is true that Rule 1.7(b) provides that the written consent of the client may allow counsel to represent clients who otherwise would not be representable under Rule 1.7(a)(2). However, there are four conditions to a representation under the consent process: (1) the lawyer must reasonably believe that he will be able to provide competent representation to each affected client; (2) the representation must not be prohibited by law; (3) the representation does not involve the assertion of a claim by one client against another; and (4) the waiver of conflict must be in writing. Rule 1.7(b). The second and third conditions above do not present any problems for the counsel in this case. As will be explained below, the fourth condition, for purposes of the Plaintiff's motion, is not dispositive, and the Court will assume compliance therewith. However, the Court cannot conclude that any lawyer reasonably could believe, as the first condition requires, that he would be able to provide competent and diligent representation to each of the affected clients identified in the foregoing discussion of conflicts.”; “Although counsel for these defendants asserts that the consent was provided knowingly and voluntarily, there is no basis in the record to conclude that the affected defendants had the very real conflicts described to them thoroughly and accurately. And, such a showing is essential especially where, as here, the conflicts are so patent and so numerous and have such potentially adverse consequences for many of the

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defendant clients. The absence of that showing alone renders the record on consent here insufficient to animate the exception permitted by Rule 1.7(b).”).

Lawyers may find themselves facing malpractice claims by disappointed joint clients.

• Nelson Bros. Prof'l Real Estate, LLC v. Freeborn & Peters, LLP, 773 F.3d 853, 855, 857-58 (7th Cir. 2014) (upholding a $1,000,000 jury award against a law firm for favoring one member of a joint venture over another member; "Representing as he did a joint venture of Alliance Equities and Nelson Brothers, Hannon was obligated to be loyal to both. The plaintiffs argue that he breached his duty to them in a variety of respects, for example by favoring Alilance Equities, his original client, over Nelson Brothers."; "Freeborn & Peters argued at trial that it didn't represent the plaintiffs at all, but that is wrong. It represented both parties to the joint venture, Alliance Equities and Nelson Brothers, and Nelson Brothers and the Nelsons are inter-changeable. A reasonable jury could find that the law firm violated its ethical obligations to the plaintiffs by not warning them of the firm's conflicts of interest, by drafting agreements that reflected favoritism toward Alliance Equities and concealing the favoritism from the plaintiffs (as by not revealing that Alliance Equities would be controlling the below-$50,000 expenditures – which later resulted in the decision to pay the law firm $49,999 owed to the gap lender), and by failing to advise the plaintiffs of the risks to them created by the badboy guarantees and the mechanics' liens on the shopping center, and finally by closing the deal for the shopping center without providing for an escrow to cover the liens.").

Best Answer

In this hypothetical, the lawyer may ethically undertake the joint representation of the husband and his fourth wife. There is no current adversity to prohibit the joint representation. However, given the possibility of adversity developing in the future, it would be wise for the lawyer to address that possibility now, and deal with the effect of such adversity arising in the future. Absent such pre-planning, the lawyer presumably would be required to withdraw from representing the husband and his fourth wife in their estate planning work should adversity develop (it would also be wise to address the information flow issue at the beginning of such a joint representation).

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The best answer to this hypothetical is (A) YES. B 6/14

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Creditors

Hypothetical 19

A large rehabilitation hospital chain has been in the news lately, because it may have inflated its earnings over the past several years by engaging in improper accounting. Some of your clients have sold goods and services to the hospital chain, and several have asked you for advice about how they should proceed (for instance, whether they should file lawsuits and seek pre-judgment attachment of hospital assets).

(a) May you advise more than one creditor of the hospital chain about how to proceed?

(A) YES

(B) NO

(A) YES (PROBABLY)

(b) May you represent more than one creditor in filing lawsuits against the hospital chain?

(A) YES

(B) NO

MAYBE

(c) Would it make a difference if some of your creditor clients are secured creditors, and some are unsecured creditors?

(A) YES

(B) NO

MAYBE

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Analysis

The traditional concept of a "joint representation on the same matter" involves the same lawyer jointly representing a group of clients who have common goals, meet together to discuss strategy, etc.

This hypothetical also deals with separate representations on the same matter -- although each client is seeking independent advice rather than acting in concert with the other clients.

(a) Unless you believe that the hospital chain does not have sufficient assets to satisfy all of the creditors' claims, there would be no per se prohibition on representing multiple creditors. However, any doubt about the hospital chain's ability to satisfy all creditors creates the possibility of a conflict among the clients -- who might end up fighting over a limited fund.

At least one bar has indicated that lawyers may undertake joint representations even if their common adversary may not be able to satisfy all the clients' claims.

• North Carolina RPC 251 (7/18/97) (holding that a lawyer can represent multiple plaintiffs even if there is not enough money to satisfy all their claims, as long as they all consent; "The representation of multiple claimants in a common accident can lead to two different conflicts of interest. On the one hand, there may be questions of liability and, therefore, potential crossclaims among the claimants. Representing clients with potential claims against each other places the lawyer in the position of being an advocate against his or her own client or clients and, ordinarily, is impermissible. See Rule 5.1(a). One the other hand, although there may be no crossclaims between the claimants, as in this inquiry, when there are limited insurance funds from which multiple claimants may be compensated, there is a potential for competition between the claimants for their share of the insurance proceeds. A lawyer who represents multiple claimants in this situation risks becoming an advocate for the increased recovery of one claimant at the expense of the other claimants. Nevertheless, this potential conflict does not involve direct antagonistic interests and can be more readily managed than the former conflict.").

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(b) The onset of litigation makes the possibility of a conflict even more acute,

and may trigger the need for explicit disclosure and consent.

Perhaps the most difficult setting for this debate involves bankruptcy

proceedings.

• Restatement (Third) of Law Governing Lawyers § 128 cmt. c(ii) (2000) ("With respect to bankruptcy, there is substantial disagreement whether certain types of cases or proceedings should be considered under the automatic rule of Subsection (2) [automatically prohibiting litigation adversity to a current client without its consent] or under the general rule of § 121 [prohibiting conflict of interests, defined as a "substantial risk" that a representation will "materially and adversely" affect a current client] and, in general, whether general conflict-of-interest rules should be changed in some instances. Tribunals must resolve such questions in light of a body of decisions developed in the specific context of bankruptcy, and often the issues are controlled by statute. The Restatement takes no position on the applicability of Subsection (2) in the many situations that may arise in bankruptcy.")

(c) The status of some clients as secured creditors and some as unsecured

creditors does not necessarily resolve the conflict. For instance, it might be possible for

the unsecured creditors to challenge the security arrangements -- which would be an obvious conflict if the lawyer were challenging another client's security.

In some situations, it might be possible for a lawyer to represent a secured creditor, and also represent an unsecured creditor who does not believe that there is any chance to successfully challenge the first client's security (and therefore agrees to a limited representation by the lawyer, which would preclude a challenge to the other creditor's security interest).

Best Answer

The best answer to (a) is (A) YES (PROBABLY); the best answer to (b) is

MAYBE; the best answer to (c) is MAYBE. N 3/12; B 8/14

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Opposite Sides of the Same Transaction

Hypothetical 20

In a classic "good news bad news" telephone call, you just learned that your best client has found a buyer for a prime piece of real estate it has been trying to sell. The "bad news" is that one of your partners represents the buyer in nearly all of its real estate matters. Your client has asked whether it is possible for your law firm to represent both the buyer and the seller in this real estate transaction.

May your law firm represent both the buyer and the seller in a real estate transaction?

(A) YES

(B) NO

(B) NO (PROBABLY)

Analysis

An ABA Model Rule comment discusses the possibility of lawyers representing opposite sides of the same transaction.

Whether a conflict is consentable depends on the circumstances. For example, a lawyer may not represent multiple parties to a negotiation whose interests are fundamentally antagonistic to each other, but common representation is permissible where the clients are generally aligned in interest even though there is some difference in interest among them. Thus, a lawyer may seek to establish or adjust a relationship between clients on an amicable and mutually advantageous basis; for example, in helping to organize a business in which two or more clients are entrepreneurs, working out the financial reorganization of an enterprise in which two or more clients have an interest or arranging a property distribution in settlement of an estate. The lawyer seeks to resolve potentially adverse interests by developing the parties' mutual interests. Otherwise, each party might have to obtain separate representation, with the possibility of incurring additional cost, complication or even litigation. Given these and other relevant factors, the clients may prefer that the lawyer act for all of them.

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ABA Model Rule 1.7 cmt. [28] (emphasis added).

The Restatement contains seemingly conflicting discussions of this issue. One section warns lawyers that they may not safely act as "mere scriveners" in preparing transactional documents, but instead must explicitly explain any limitations in a representation.

Conflicted but unconsented representation of multiple clients, for example of the buyer and seller of property, is sometimes defended with the argument that the lawyer was performing the role of mere "scrivener" or a similarly mechanical role. The characterization is usually inappropriate. A lawyer must accept responsibility to give customary advice and customary range of legal services, unless the clients have given their informed consent to a narrower range of the lawyer's responsibilities.

Restatement (Third) of Law Governing Lawyers § 130 cmt. b (2000).

Two Restatement illustrations describe scenarios in which lawyers may not jointly represent opposite sides of the same transaction.

Lawyer has been asked by Buyer and Seller to represent both of them in negotiating and documenting a complex real- estate transaction. The parties are in sharp disagreement on several important terms of the transaction. Given such differences, Lawyer would be unable to provide adequate representation to both clients.

11. The facts being otherwise as stated in Illustration 10, the parties are both in agreement on terms and possess comparable knowledge and experience in such transactions, but, viewed objectively, the transaction is such that both parties should receive extensive counseling concerning their rights in the transaction and possible optional arrangements, including security interests, guarantees, and other rights against each other and in resisting the claims of the other party for such rights. Given the scope of legal representation that each prospective client should receive, Lawyer would be unable to provide adequate representation to both clients.

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Restatement (Third) of Law Governing Lawyers § 122 cmt. g(iv), illus. 10 & 11 (2000).

However, another section seems to acknowledge that lawyers may jointly represent opposite sides in the same transaction, although explaining the obvious conflicts implications.

Client A and Client B give informed consent to a joint representation by Lawyer to prepare a commercial contract. Lawyer's bill for legal services is paid by both clients and the matter is terminated. Client B then retains Lawyer to file a lawsuit against former Client A on the asserted ground that A breached the contract. Lawyer may not represent Client B against Client A in the lawsuit without A's informed consent . . . . Client A's earlier consent to Lawyer's joint representation to draft the contract does not itself permit Lawyer's later adversarial representation.

Restatement (Third) of Law Governing Lawyers § 122 cmt. c(i), illus. 1 (2000).

Some legal ethics opinions (many of them several years old) permit lawyers to represent both sides of friendly business transactions.

• Vermont LEO 2011-2 (2011) (addressing the following question: "An attorney inquires whether the attorney may continue to represent both the lender and the borrower/buyer in a real estate transaction, giving consideration to the changes in the rules and regulations applicable to real estate practice and the changes to the Rules of Professional Conduct."; finding such action proper under certain circumstances; "Prior to commencing the representation of multiple clients in a single transaction, the attorney must make an independent determination that the attorney will be able to provide 'diligent and competent representation to each affected client.' This assessment must be made on a case by case basis; it can never be presumed that it is generally acceptable to represent two parties in a single transaction. The assessment must be made based on the circumstances of each party, in particular, the sophistication and general knowledge of each party should be taken into account when making the assessment. Once the attorney makes the determination that both parties can be appropriately represented, the attorney must make a meaningful disclosure of the risks and benefits of the multiple representation to both parties and obtain each party's informed consent."; "An attorney who undertakes the representation of the lender and borrower/buyer in a real estate transaction may find that a more extensive conflict arises during the course of the representation. For example, the

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attorney may know that the lender does not allow concessions by the sellers to the buyers in excess of the closing costs, but the attorney is advised at the commencement of the representation that the first task will be to negotiate a substantial concession by the seller to the buyer well in excess of the estimated closing costs, and to disguise the concession to avoid the lender's rules. The attorney is now presented with a new conflict in which the rules permitting a waiver will not likely apply. The attorney has information gained in the course of the representation which the attorney must now disclose to the lender client. However, having obtained the information from a current client, the attorney must first obtain consent, after disclosure from the borrower client before advising the lender of the circumstances. In this example, it is unlikely that the borrower will authorize the attorney to share the information with the lender. The attorney must now withdraw because the attorney can no longer provide competent representation to both parties. Whether the attorney can continue to represent one party after withdrawing is governed by the provisions of Rule 1.9.").

• Pennsylvania LEO 2009-003 (1/26/09) (explaining that an in-house lawyer for a real estate developer may represent buyers and sellers of real estate in transactions in which the developer is involved; "Your employer has already given permission for you to be retained by individuals who would participate in these real estate transactions. Your participation would not be directly prohibited, at out [sic] the outset, but we believe that, prior to retention, you should obtain informed consent from your clients, pursuant to Rule 1.7(b)(4), for reasons presented in example [7] of the comments. You should inform your potential clients that although these transactions normally proceed uneventfully, there is a potential for conflict of interest in the event that the transaction fails and there are conflicting claims to the sum on deposit that your client initially provided or to which your client became entitled."; "In the event that such a conflict would arise in connection with the transaction, that conflict could not be resolved by consent, on the part of either your employer or your client, because the transaction becomes a prohibited representation as discussed in the comments in Rule 1.7. [Y]ou would be unable to continue representation of either party, your employer or your client, and you therefore would be required to withdraw from any and all representation. . . . You informed me that your employer is willing to have you withdraw from representing that party, in the event of such a conflict, and your client would also be required to permit such withdrawal in the even[t] that the projected conflict actually arises."; inexplicably not dealing with the unauthorized practice of law issue).

• North Carolina LEO 2006-3 (1/23/09) (holding that a lawyer can represent both the buyer and seller in a real estate transaction).

• North Carolina LEO 99-8 (10/22/99) ("[A] lawyer may represent all parties in a residential real estate closing and subsequently represent only one party in

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an escrow dispute provided the lawyer insures that the conditions for waiver of an objection to a possible future conflict of interest set forth in RPC 168 are satisfied."; explaining that "[t]he closing lawyer represents the buyer, the seller, and the lender in the closing after satisfying the conditions for multiple representation set forth in RPC 210. As in the preceding inquiry, the buyer and the seller enter into an agreement that appoints the closing lawyer escrow agent. The escrow agreement also provides that, in the event of a dispute, the funds will be given to another escrow agent and the closing lawyer will represent the buyer in the escrow dispute. May a lawyer participate in an arrangement in which one of the lawyer's clients agrees in advance to waiver any objection to a possible future conflict of interest?").

• North Carolina LEO 97-8 (1/16/98) (holding that a lawyer can represent both the buyer and the developer in a real estate closing under certain circumstances; "The lawyer may proceed with the common representation only if the lawyer reasonably believes that his or her loyalty to the seller will not interfere with the lawyer's responsibilities to the buyer. Rule 2.2(a)(3). Also, the lawyer may not proceed with the common representation unless he or she reasonably believes that there is little likelihood that an actual conflict will arise out of the common representation and, should a conflict arise, the potential prejudice to the parties will be minimal."; "If the lawyer reasonably believes the common representation can be managed, the lawyer must make full disclosure of the advantages and risks of common representation and obtain the consent of both parties before proceeding with the representation. . . . This disclosure should include informing the seller that, in closing the transaction, the lawyer has equal responsibility to the buyer and, regardless of the prior representation of the seller, the lawyer cannot prefer the interests of the seller over the interests of the buyer. With regard to the buyer, the lawyer must fully disclose the lawyer's prior and existing professional relationship with the seller. This disclosure should include a general explanation of the extent of the lawyer's prior and current representation of the seller and a specific explanation of the lawyer's legal work, if any, on the property that is the subject of the transaction. The latter should include the disclosure of all legal work relating to the development of a subdivision if relevant."; "Full disclosure to the seller and to the buyer must also include an explanation of the scope of the lawyer's representation. . . . In addition, the lawyer should explain that if a conflict develops between the seller and the buyer, the lawyer must withdraw from the representation of all parties and may not continue to represent any of the clients in the transaction. RPC 210 and Rule 2.2(c). For example, the lawyer may not take a position of advocacy for one party or the other with regard to the completion of the construction of the house, the escrow of funds for the completion of the construction, problems with title to the property, and enforcement of the warranty on new construction. Areas of potential conflict should be outlined for both parties prior to obtaining their separate consents to the common

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representation."; "The disclosure required must be made prior to the closing of the transaction. The Revised Rules of Professional Conduct do not require the consents to be in writing. However, obtaining written consents is the better practice."; "If common representation is permitted under the conditions outlined above, Attorney may perform legal services for both parties as necessary to close the transaction including offering an opinion as to title to the buyer. Either party may be charged for the lawyer's services as appropriate.").

• Virginia LEO 1216 (5/8/89) (a lawyer may represent the buyer and seller in a real estate transaction as long there is consent after full disclosure).

• Virginia LEO 1149 (12/19/88) (a lawyer may represent the buyer and seller in a real estate transaction as long as both consent and are advised of their right to retain independent counsel).

Opinion legal ethics (the more recent ones) criticize or prohibit such joint representations of transactional counterparties.

• Rhode Island LEO 2017-02 (3/31/17) ("The law firm, which represents the seller in matters relating to the seller's business, has a non-waivable conflict of interest under Rule 1.7(a) and (b) in the proposed representation of both the buyer and the seller for the purchase and sale of a division of the seller's business."; "The law firm proposes that one lawyer in the firm will represent the seller, and another lawyer in the firm will represent the buyer, with a 'screen' to protect the attorney-client privilege, and the confidentiality for each client. The Rules of Professional Conduct permit screening in only three situations, none of which is presented in the facts of this inquiry: screening for lateral hires under Rule 1.10, screening for former government officers and employees under Rule 1.11, and screening for former judges, arbitrators and mediators under Rule 1.12."; "The inquiring attorney has stated that he/she has not represented the seller and is not aware of seller's confidential information; and the other lawyer in the firm who proposes to represent the seller, has never represented the buyer and is not aware of buyer's confidential information. These facts, even if coupled with a 'screen' as proposed, will not suspend the reality that the seller and the buyer are clients of one law firm, and are not clients of two independent lawyers. For purposes of the rules governing conflicts of interest under Rule 1.7, a firm of lawyers is essentially one lawyer. See R.I. Ethics Advisory Panel Op. 2016-01 (2016)."; "The sale of a business, or as here, the sale of a division of a business, is an adversarial process. The law firm's representation of both the seller and the buyer in this inquiry exemplifies a direct conflict of adverse interests under Rule 1.7(a)(1). What is in the buyer's best interests is not necessarily in the seller's best interests. Substantive terms may need to be negotiated. The buyer and seller in this inquiry have initially negotiated the sale price and the

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lease terms, but they want their respective attorneys to advise them about the negotiations of these economic terms. The sale price and lease terms are but two of an exhaustive list of other materials terms, conditions, and warranties which typically require negotiation in the purchase of a company's assets. Material terms that have not been addressed by the parties may lead to disagreements or conflicts. Situations as this, in which lawyers in a law firm are required to negotiate with each other on behalf of multiple clients, will rarely be consentable. See N.Y. Bar Assoc. Comm. Prof. Ethics, Formal Op. 2001-2 (2001)."; "The Panel notes that the seller is a sophisticated business client of the law firm with experience in the purchase and the sale of businesses. By contrast, the purchase of seller's division is the buyer's first purchase of a business. Particularly noteworthy is the fact that the law firm has regularly represented the seller on matters relating to the seller's business which is the subject matter of the firm's proposed dual representation."; "Based on the foregoing, the Panel is of the opinion that the lawyers in the law firm cannot reasonably believe that they will be able to provide competent and diligent representation to the buyer and to the seller in this business transaction. The law firm cannot satisfy Rule 1.7(b)(1) and therefore, may not seek the informed consent of the buyer and the seller. The Panel concludes that the proposed representation presents a non- waivable conflict under Rule 1.7(a) and (b), and is ethically prohibited." (emphases added)).

• North Carolina LEO 2013-14 (1/23/15) (analyzing and generally criticizing arrangements in which the same lawyer represents both sides in a real estate transaction; "In most instances, a lawyer may not represent both the borrower and the lender for the closing of a commercial loan even with consent."; "A commercial loan closing is substantially different from a residential closing in which there is little opportunity to negotiate on behalf of the borrower/buyer once the purchase contract and loan commitment letter are signed. In a commercial loan closing, there are numerous opportunities for a lawyer to negotiate on behalf of the parties, so impartiality is rarely possible. There are also numerous opportunities for an actual conflict to arise between the borrower and the lender and, if a conflict does arise, the prejudice to the parties would be substantial. Therefore, common representation in a commercial loan closing is, in most instances, a 'nonconsentable' conflict, meaning that a lawyer may not ask the borrower and the lender to consent to common representation."; "[D]ual representation of the borrower and the lender for the closing of a commercial real estate loan is a nonconsentable conflict of interest unless the following conditions can be satisfied: (1) the contractual terms have been finally negotiated prior to the commencement of the representation; (2) there are no material contingencies to be resolved; (3) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (4) it is unlikely that a difference in interests will eventuate and, if it does, it will not materially

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interfere with the lawyer’s independent professional judgment in considering alternatives or foreclose courses of action that should be pursued on behalf of a client; (5) the lawyer reasonably concludes that he will be able to act impartially in the representation of both parties; (6) the lawyer explains to both parties that his role is limited to executing the tasks necessary to close the loan and that this limitation prohibits him from advocating for the specific interests of either party; (7) the lawyer discloses that he must withdraw from the representation of both parties if a conflict arises; and (8) after the foregoing full disclosure, both parties give informed consent confirmed in writing."; "Regardless of the above conditions allowing common representation of the borrower and lender, consent may never be sought to represent the lender, the borrower, and the seller of real property if the seller will provide secondary financing for the transaction and accept a secondary deed of trust. In this situation, the risks to the interests of the seller are too great to permit a lawyer to seek consent to common representation."; "[A] lawyer may be the lead lawyer for the closing ('the closing lawyer') provided the lawyer represents only one party -- either the lender or the borrower. Because the title work and other due diligence are for the benefit of the lender, there is no prohibition on the lender’s lawyer performing these tasks. See 2004 FEO [Formal Ethics Opinion] 10 (because buyer is the intended beneficiary of the deed although not a signatory, buyer’s lawyer may prepare deed without creating a lawyer-client relationship with seller). However, if the closing lawyer represents the lender, certain conditions must be satisfied."; "[I]n a commercial loan closing, the lender’s lawyer may serve as the closing lawyer provided the borrower is informed that the closing lawyer will not represent its interests and will interpret loan documents in the light that is most favorable to the lender; the borrower is given a reasonable opportunity to retain its own counsel and is not mislead [sic] as to its right to do so; the lawyers for both parties advise their clients about the risks and benefits of a having the lender’s lawyer serve as the closing lawyer; and the borrower’s lawyer is allowed to observe and participate in the transaction to the extent necessary to protect the borrower’s interests.").

• New York LEO 807 (1/29/07) ("A part-time associate of a law firm is 'associated' with the law firm for the purpose of imputation of conflicts of interest. The buyer and seller of residential real estate may not engage separate attorneys in the same firm to advance each side's interests against the other, even if the clients give informed consent to the conflict of interest."; "We concluded in N.Y. State 162 (1970) that a single lawyer could represent both parties to a real estate transaction where the interests of buyer and seller are not actually or potentially differing or would vary only slightly. In N.Y. State 611 (1990), we opined that a single lawyer could represent the seller and the lender in a real estate transaction where the parties have reached a complete accord on the business terms of the transaction, no points of importance remain for negotiations, and a title policy is to be

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obtained. See also N.Y. County 615 (1973) (lawyer may represent in a real estate transaction, with their consent, both buyer and seller who had already agreed upon the purchase price, time and manner of payment, and other terms and conditions of the sale)."; "Under DR 5-105(D), these limitations on a single lawyer representing two parties in a real estate transaction apply as well to representation by a single law firm. The opinions discussed above, in which we concluded that a single lawyer may, in unusual and very limited circumstances, undertake dual representation of both parties to a real estate transaction, involve cases where there is little or no actual adversity between the two parties and they have both sought out a single lawyer (or law firm) to represent them jointly. This might occur, for example in a family transaction or where two clients of a lawyer or law firm have agreed on substantially all of the terms of the transaction and together ask the lawyer or law firm to document the transaction for them both. The situation under consideration in this opinion is quite different: Here is a buyer and a seller of residential real estate each determined at the outset of the negotiations to be represented by separate lawyers in separate firms, and the two clients separately approached lawyers in different firms to negotiate the terms of the transaction between them. The parties' decision at the outset that they should be represented by two different lawyers in two different firms reflects an actual adversity and conflict of interest between them that would require the two lawyers to negotiate or bargain against each other as adversaries. A conflict like the one here is not consentable under DR5-105(C). In such a situation, a disinterested lawyer would not conclude that the two lawyers could 'competently represent the interests of each.' See N.Y. City 2001-2 ('If the dual representations require lawyers to directly negotiate the substantive business terms with each other, the direct adversity could preclude such concurrent representation -- even with consent.'" (footnote omitted) (emphases added)).

Courts have also dealt with this scenario. Like the legal ethics opinions, courts have taken different positions.

One court approved such a joint representation.

• Van Kirk v. Miller, 869 N.E.2d 534, 542-43, 543, 546 (Ind. Ct. App. 2007) (assessing the validity of a consent allowing a lawyer to represent both sides in a negotiated transaction involving the sale of a sports bar; "Although Van Kirk [purchaser of the sports bar] argues that the conflict at issue herein was nonconsentable, we find his arguments to be unpersuasive. First, Van Kirk and Summers [seller of the sports bar], while clearly protecting their own self- interests, had a common goal--the finalization of the B&T transaction. And, as noted above, Rule 1.7 provides that dual representation is permissible where the clients' interests are 'generally aligned . . . even though there [are]

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some difference[s].' Prof. Cond. R. 1.7 cmt. 28. Furthermore, Summers and Van Kirk independently negotiated . . . the terms of the transaction and contacted Miller [lawyer] to draft an agreement that would finalize the deal. Miller did not sit on both sides of the table during the negotiations and, instead, was employed to draft the agreement memorializing the terms that Summers and Van Kirk had independently negotiated. In sum, it was reasonable for Miller to conclude that he could competently and diligently draft an agreement for the parties; therefore, we conclude that the conflict at issue herein was consentable. For that reason, it was permissible for Miller to represent both Summers and Van Kirk if he obtained a valid conflict waiver for the dual representation."; finding that the following language created a valid consent: "[Van Kirk and Summers] have each been represented over some time by attorney [Miller] and each well understands that a conflict of interest would preclude Miller, or those who practice with him, from fully representing the interests of one against the other in the contemplated sale of [B&T] stock and the land at 2809 West Main Street, Fort Wayne, Indiana. The terms of the proposed sale have been largely negotiated by the parties without the intervention of attorney Miller, and each of us hereby waives the conflict of interest which would otherwise preclude attorney Miller from representing either of us in the preparation of a proposed sale and closing documents. We understand the conflict which could arise; we understand we have the right to demand that attorney Miller turn the files for this transaction over to independent counsel of our own choice, without any such conflicts; and we freely agree to permit him to represent both of us in the proposed preparation of documents and closing."; also granting summary judgment for the lawyer on a malpractice claim by the proposed buyer of the sports bar after the transaction collapsed; "While it is unfortunate that Summers and Van Kirk did not successfully close on the B&T deal as originally intended, it does not automatically follow that Miller committed legal malpractice because the anticipated deal collapsed. There is no evidence that Miller favored Summers during the dual representation and there is no evidence that Van Kirk told Miller to stop representing Summers after Van Kirk terminated Miller's representation. In sum, we cannot conclude that Miller breached his duty to Van Kirk and, therefore, we cannot conclude that Miller committed legal malpractice." (footnote omitted) (emphases added)).

Other courts have condemned such joint representations.

• Iowa Sup. Ct. Attorney Disciplinary Bd. v. Willey, 889 N.W.2d 647, 650, 651 (Iowa 2017) (suspending for sixty-days a lawyer who represented both sides in a loan transaction; "In June 2010, Willey [Lawyer] and Wieniewitz [Client] met to discuss a business that Wieniewitz was considering purchasing. During this meeting, Willey learned that Wieniewitz was interested in possible investment opportunities. After discussing the original business purchase, Willey told Wieniewitz that he knew of another investment opportunity that

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might be available and he would let him know if there was space for an additional investor."; "The investment opportunity was structured as a loan between Wieniewitz and Synergy [Other client]."; "Willey did not disclose his relationship with Wild or Synergy to Wieniewitz until much later. Willey never obtained informed consent from Wieniewitz, nor confirmed in writing any potential conflict of interest with Wild and Synergy. Willey did not recommend Wieniewitz consult with independent counsel regarding the concurrent conflict of interest.").

• N.C. State Bar v. Merrell, 777 S.E.2d 103, 105 (N.C. Ct. App. 2015) (finding that a North Carolina lawyer had violated Rule 1.7 by representing both sides in a commercial real estate transaction; "Defendant Dan L. Merrell appeals from an order of discipline of the Disciplinary Hearing Commission of the North Carolina State Bar (the 'DHC') concluding that defendant violated the Rules of Professional Conduct by: (1) failing to safeguard and hold in trust clients' entrusted funds in violation of Rule 1.15–2(a) and (2) engaging in a conflict of interest by representing both parties to a commercial real estate transaction without first obtaining written and informed consent in violation of Rule 1.7(a). We hold that the DHC's findings of fact are supported by substantial evidence in the record, and the findings, in turn, support the DHC's conclusions of law. Consequently, we affirm.").

• In re Katz, 981 A.2d 1133 (Del. 2009) (suspending for three months a lawyer who represented both a lender and a borrower, and failed to disclose unfavorable term provisions to the borrower that the lawyer represented; noting that Delaware has various guidelines governing this situation).

Courts have also dealt with the effect of possible conflicts in this settling on any resulting business arrangement's enforceability.

• LK Operating, LLC v. Collection Grp., LLC, 279 P.3d 448, 455, 455-56, 456 (Wash. Ct. App. 2012) (holding that lawyer's ethics breach in representing two clients with adverse interests does not justify invalidating the business arrangement; "The courts of this state have applied RPC 1.8 (restricting business transactions with a client) to refuse to enforce fee agreements with attorneys as being against public policy. . . . The application of the RPC and result in these cases was not, however, categorical. The lawyer could show that the contract was fair and reasonable, free from undue influence, and made after a fair and dull disclosure of the facts before the court would hold any agreement void or voidable."; "We conclude, however, that RPC 1.7 cannot provide the basis for rescission. RPC 1.8, which has provided the legal basis for rescission, is different in its wording and its effect from RPC 1.7. A lawyer violates RPC 1.8 when the lawyer enters into a business transaction with his or her client without the minimum notice and disclosure, and without giving the client the opportunity to seek the advice of independent

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counsel. We will then generally refuse efforts by the lawyer to enforce those agreements."; "What we have with RPC 1.7 is a rule to regulate the attorney-client relationship and ensure that an attorney's representation is not materially limited by conflicting interests. . . . ('The rule assumes that multiple representation will necessarily require consultation and consent in writing, reasonably so since the rule imposes these requirements anytime there is a potential conflict.'). The differences are important."; "The problem with applying RPC 1.7 here is that the remedy, rescission, could easily fall on an innocent client. And it is not the client who should pay for the sins of its lawyer. Even if the lawyer breached his or her fiduciary duties, it is the lawyer who should suffer the consequences, not the client. It is not the client(s) who did anything wrong; it is the lawyer by representing clients on both sides. The appropriate remedy is to file a disciplinary action with the Washington State Bar Association."; "In sum, we agree Mr. Powers violated RPC 1.7. But that violation cannot be grounds to rescind any investment agreement between LKO and TCG.").

Lawyers should undertake such joint representation only with great care, and after a detailed analysis of the existing and possible future adversity between the jointly represented clients.

Best Answer

The best answer to this hypothetical is (B) NO (PROBABLY).

N 3/12; B 8/14

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Opposite Sides of the Same Litigation

Hypothetical 21

Your law firm represents a number of small companies in your city. One of your clients has asked you to prepare and file a collection case against another local company which has failed to pay for a large printing job that your client performed for the other company. You know that one of your partners handles most of the corporate matters for the potential defendant company. Your client has told you that it would consent to your law firm representing the defendant in the case, because your client trusts you to vigorously pursue the collection case.

With the defendant company's consent, can your law firm represent both the plaintiff and the defendant in the collection case?

(A) YES

(B) NO

(B) NO

Analysis

The ABA Model Rules prohibit lawyers (even with consent) from representing a

client if the representation involves "the assertion of a claim by one client against

another client represented by the lawyer in the same litigation or other proceeding

before a tribunal." ABA Model Rule 1.7(b)(3).

Several ABA Model Rule comments provide additional explanation.

Paragraph (b)(2) describes conflicts that are nonconsentable because the representation is prohibited by applicable law. For example, in some states substantive law provides that the same lawyer may not represent more than one defendant in a capital case, even with the consent of the clients, and under federal criminal statutes certain representations by a former government lawyer are prohibited, despite the informed consent of the former client. In addition, decisional law in some states limits the ability of a governmental client, such as a municipality, to consent to a conflict of interest.

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ABA Model Rule 1.7 cmt. [16].

A later comment suggests how

[p]aragraph (b)(3) prohibits representation of opposing parties in the same litigation, regardless of the clients' consent. . . . [S]imultaneous representation of parties whose interests in litigation may conflict, such as coplaintiffs or codefendants, is governed by paragraph (a)(2). A conflict may exist by reason of substantial discrepancy in the parties' testimony, incompatibility in positions in relation to an opposing party or the fact that there are substantially different possibilities of settlement of the claims or liabilities in question."

ABA Model Rule 1.7 cmt. [23].

The Restatement takes essentially the same approach.

• Restatement (Third) of Law Governing Lawyers § 122(2)(b) (2000) ("[n]otwithstanding the informed consent of each affected client or former client, a lawyer may not represent a client if . . . one client will assert a claim against the other in the same litigation").

The Restatement provides an example of such a per se prohibition.

• Restatement (Third) of Law Governing Lawyers § 122 cmt. g(iii), illus. 8 (2000) ("A and B wish to obtain an amicable dissolution of their marriage. State law treats marriage dissolution as a contested judicial proceeding. Lawyer is asked to represent both A and B in negotiation of the property settlement to be submitted to the court in the proceeding. Informed consent can authorize Lawyer to represent both parties in the property-settlement negotiations (subject to exceptions in some jurisdictions, where interests of children are involved, for example), but consent does not authorize Lawyer to represent both A and B if litigation is necessary to obtain the final decree. The parties may agree that Lawyer will represent only one of them in the judicial proceeding. The other party would either be represented by another lawyer or appear pro se . . . .").

Several comments provide further explanation.

• Restatement (Third) of Law Governing Lawyers § 122 cmt. g(iii) (2000) ("Whether clients are aligned directly against each other within the meaning of this Comment requires examination of the context of the litigation. In multi- party litigation, a single lawyer might, for example, represent members of a class in a class action, multiple creditors or debtors in a bankruptcy

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proceeding, or multiple interested parties in environmental clean-up litigation . . . . Joint representation is appropriate following effective client consent, together with compliance with applicable statutory or rule requirements, which may require court approval of the representation after disclosure of the conflict. Such joint representation is appropriate, notwithstanding that the co-clients may have conflicting claims against each other in other matters as to which the lawyer is not providing representation. The clients may also give informed consent to joint representation while they negotiate any differences they may have in the matter in litigation, perhaps employing the lawyer as appropriate in such negotiations . . . , or prior agreement on such negotiated matters may be a condition of the clients' consent . . . . Where the alignment of parties, clients, and claims is such that the lawyer will not oppose another client with respect to the matters of dispute between them, as indicated in § 122(2)(b), there is no conflict. Thus, in complex litigation, the same lawyer may represent two defendants with largely congruent positions with respect to their defense, if other counsel are representing the two clients with respect to a dispute between them.").

• Restatement (Third) of Law Governing Lawyers § 122 cmt. g(iii) (2000) ("When clients are aligned directly against each other in the same litigation, the institutional interest in vigorous development of each client's position renders the conflict nonconsentable . . . . The rule applies even if the parties themselves believe that the common interests are more significant in the matter than the interests dividing them. While the parties might give informed consent to joint representation for purposes of negotiating their differences . . . , the joint representation may not continue if the parties become opposed to each other in litigation.").

These issues are more acute in the criminal context.

• United States v. Daugerdas, 735 F. Supp. 2d 113, 118 (S.D.N.Y. 2010) (granting the government's motion to disqualify the Sonnenschein Law Firm from representing both BDO's former Chairman (Field) and a witness cooperating with the government; "While this Court does not question the ethical wall constructed by Sonnenschein between its Dallas and Chicago offices, . . . the simultaneous representation of a defendant and a cooperating witness undermines the integrity of these proceedings. Sonnenschein does not identify a single case in which a court permitted a law firm to simultaneously represent a defendant and a cooperating witness with adverse interests in the same criminal proceeding. The explanation for this seems clear: most firms do not entertain this type of concurrent representation.").

• People v. Hernandez, 896 N.E.2d 297 (Ill. 2008) (holding that a criminal defense lawyer faced a per se conflict in representing both a criminal defendant and the victim; finding that the lawyer's conflict violated the criminal

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defendant's Sixth Amendment rights, and reversing the defendant's conviction).

• United States v. Edwards, 39 F. Supp. 2d 716, 731-32 (M.D. La. 1999) (in a criminal action, disqualifying a lawyer who was representing multiple criminal defendants; holding that the lawyer had earlier represented both a corporation and its sole shareholder; "As a general rule, an attorney for a corporation represents the corporation, and not its shareholders. The issue of attorney-client relationship becomes more complicated in the case of a small closely-held corporation with only a few shareholders or directors. In such cases, the time between individual and corporate representation can become blurred. The determination whether the attorney represented the individual of the small closely-held corporation is fact-intensive and must be considered on a case-by-case basis." (footnote omitted)).

One bar even pointed to this strict prohibition in holding that lawyer fired by one of two jointly represented clients could not continue to represent the other client even if both consented.1

This per se prohibition can have an interesting effect on a lawyer's role as

mediator. An ABA Model Rules comment addresses this issue.

Paragraph (b)(3) describes conflicts that are nonconsentable because of the institutional interest in vigorous development of each client's position when the clients are aligned directly against each other in the same litigation or other proceeding before a tribunal. Whether clients are aligned directly against each other within the meaning of this paragraph requires examination of the context of the proceeding. Although this paragraph does not preclude a lawyer's

1 Maryland LEO 2006-15 (2006) (holding that a lawyer fired by one of two jointly represented clients [who have now become adversaries] must withdraw from representing both clients, even if both clients consent to the lawyer's continuing to represent just one of the clients; "The lawyer is likely unable to provide competent and diligent representation to clients with interests that are diametrically opposed to one another. Further, (b)(3) [Maryland Ethics Rule 1.7(b)(3)] forbids the continued representation, even with a waiver, where one client asserts a claim against the other. That appears to be the case here, and, therefore, the conflict is not waivable."; also holding that the lawyer must provide both of the formerly jointly represented clients the lawyer's files; "With regard to the remaining two issues, former-Client B should have unfettered access to Attorney 1's files under what has been recognized by some courts as the 'Joint Representation Doctrine, ' which provides that: 'Generally, where the same lawyer jointly represents two clients with respect to the same matter, the clients have no expectation that their confidences concerning the joint matter will remain secret from each other, and those confidential communications are not within the privilege in subsequent adverse proceedings between the co-clients.").

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multiple representation of adverse parties to a mediation (because mediation is not a proceeding before a "tribunal" under Rule 1.0(m)), such representation may be precluded by paragraph (b)(1).

ABA Model Rule 1.7 cmt. [17].

Interestingly, states take differing positions on whether a lawyer-mediator who has successfully resolved a divorce or other contentious matter may prepare documents memorializing the settlement agreement. In 2007, the Maryland Bar noted the differing positions taken by states, and ultimately held that the lawyer could not draft a settlement agreement.

• Maryland LEO 2007-19 (11/5/07) ("The gist of the issue involves the question of whether an attorney-mediator can draft a settlement agreement for unrepresented parties in resolution of a dispute the mediator has been asked to resolve. The short answer to that question is that an attorney-mediator may not draft a settlement agreement on behalf of unrepresented parties to the mediation."; "It is common for mediators to assist the parties in preparing a term sheet or a memorandum of understanding to set forth the essential terms of the mediated resolution of the dispute. This activity is undertaken as a mediator, not as the lawyer for either party. We see no problem with a lawyer-mediator engaging in this task."; "When the task changes from memorializing the understanding to drafting legally binding documents, the mediator's role as scrivener changes to legal practitioner."; "This issue is not one without difference of opinion. Other states that have considered the issue under the Model Rules reached conflicting conclusions. Utah, North Carolina, Virginia and New Hampshire, all reached the same conclusion that we do. New York, Connecticut and Massachusetts reach the opposite conclusion. We believe the Utah Committee's analysis to be best under Maryland law." (emphasis added; footnotes omitted); ultimately concluding that the mediator "cannot represent both parties in the dispute" and therefore could not draft a settlement agreement for the parties as opposed to "a document that memorializes the understanding that was reached by the parties").

As the Maryland legal ethics opinion recognized, some states permit mediators to engage in such practice.

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• ABA Section of Dispute Resolution, Comm. on Mediator Ethical Guidance Op. 2010-1 (2010) (explaining that the mediator handling a no-fault divorce has asked whether he or she could also prepare documents memorializing the parties' agreement on property issues and child support issues; explaining that the mediator had to comply with ABA guidelines, which require full disclosure to the client about the limits of the mediator's abilities to provide legal advice or information, and the inability of the mediator to represent the parties; "The Committee sees no ethical impediment under the Model Standards to the mediator performing a drafting function that he or she is competent to perform by experience or training. A mediator may, in drafting a mediated settlement agreement or MOU, act as a 'scrivener' -- simply memorializing the parties' agreement without adding terms or operative language. The Model Standards arguably also permit a mediator to, if she has the necessary background and experience, provide legal information to the parties. If, however, the mediator puts on his or her legal counsel's hat, by giving legal advice or performing tasks typically done by legal counsel, then the mediator runs the serious risk of inappropriately mixing the role of legal counsel and mediator without disclosing the implications of that shift in roles or without getting party consent.").

• New York State LEO 736 (1/3/01) ("An attorney-mediator may prepare divorce documents incorporating a mutually acceptable separation agreement and represent both parties only in those cases where mediation has proven entirely successful, the parties are fully informed, no contested issues remain, and the attorney-mediator satisfies the 'disinterested lawyer' test of DR 5-105(C).").

• Michigan LEO RI-278 (8/12/96) ("A lawyer acting as a mediator in a domestic dispute resolution process may draft documents which purport to represent the understanding reached between the parties."; "The lawyer mediator is not per se prohibited from preparing pleadings for purposes of implementation of the memorandum of understanding. However, any activity in this regard would be construed as legal services by a lawyer, not mediation, and would necessarily invoke MRPC 1.7, 2.2, and other ethics duties.").

Other states take the opposite approach.

• Ohio LEO 2009-4 (6/12/09) ("Upon conclusion of domestic relations mediation, a lawyer-mediator may not, pursuant to Prof. Cond. Rule 1.7(c)(2), prepare necessary legal documents, such as petitions, decrees, and ancillary documents, for filing by or on behalf of both the parties in a domestic relations proceeding. Upon conclusion of domestic relations mediation, a lawyer-mediation, a lawyer-mediator may prepare necessary legal documents, such as petitions, decrees, and ancillary documents, for filing by or on behalf of one of the parties to a domestic relations proceeding, provided

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the following conditions are met. First, as required by Prof. Cond. R. 1.12(b), during mediation, a lawyer-mediator must not negotiate to subsequently represent one of the parties. Second, as required by Prof. Cond. R. 1.12(a), both parties must give informed consent, confirmed in writing to a lawyer-mediator's subsequent representation of one of the parties. Third, as required by R.C. 102.03(A)(1) and through application of Prof. Cond. R. 1.7(c)(1), during employment or for one year after employment with the court, a lawyer-mediator who is a court employee must not undertake a representation in a matter in which he or she personally participated. Fourth, as required by Prof. Cond. R. 4.3, if one party is unrepresented, a lawyer-mediator who subsequently represents the other party, must properly deal with the unrepresented party. Fifth, a lawyer-mediator who undertakes a subsequent legal representation must comport with any applicable standards of practice for mediators.").

• Texas LEO 583 (9/2008) ("Under the Texas Disciplinary Rules of Professional Conduct, a lawyer may not agree to serve both as a mediator between parties in a divorce and as a lawyer to prepare the divorce decree and other necessary documents to effect an agreement resulting from the mediation. Because a divorce is a litigation proceeding, a lawyer is not permitted to represent both parties in preparing documents to effect the terms of an agreed divorce.").

• Utah LEO 05-03 (9/30/05) ("When a lawyer-mediator, after a successful mediation, drafts the settlement agreement, complaint and other pleadings to implement the settlement and obtain a divorce for the parties, the lawyer-mediator is engaged in the practice of law and attempting to represent opposing parties in litigation. A lawyer may not represent both parties following a mediation to obtain a divorce for the parties.").

Best Answer

The best answer to this hypothetical is (B) NO.

N 3/12; B 8/14

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General Rule -- Adversity to Former Clients

Hypothetical 22

In connection with your service on a committee reviewing your state's ethics rules, you have been asked to vote on proposals governing adversity to former clients.

What basic conflict rule should apply to a lawyer's adversity to a former law firm client?

(A) As long as the lawyers with material confidential information do not work on the matter (and comply with their ethical duty of confidentiality), other lawyers in the firm may be adverse to the former client.

(B) As long as the firm sets up a formal "ethics screen" prohibiting the lawyers with material confidential information from revealing it to anyone else in the firm, other lawyers in the firm may be adverse to the former client.

(C) If any lawyer at the firm has pertinent material confidential information from an earlier representation that could be used against the former client, no lawyer in the firm may be adverse to the former client.

(C) IF ANY LAWYER AT THE FIRM HAS PERTINENT MATERIAL CONFIDENTIAL INFORMATION FROM AN EARLIER REPRESENTATION THAT COULD BE USED AGAINST THE FORMER CLIENT, NO LAWYER IN THE FIRM MAY BE ADVERSE TO THE FORMER CLIENT.

Analysis

The basic conflicts rule governing adversity to former clients primarily rests on a duty of confidentiality, rather than on a duty of loyalty.

• Lennar Mare Island, LLC v. Steadfast Ins. Co., 105 F. Supp. 3d 1100, 1108- 09, 1109 (E.D. Cal. 2015) (disqualifying Hogan Lovells from representing its client adverse to counterclaim defendant CH2M Hill, because Hogan Lovells also represented that company's parent; "Different standards govern the analysis of concurrent and successive conflicts. If the conflict is successive, the court determines whether the representations are substantially related. . . . If the representations are substantially related, an attorney's access to adverse confidential information is presumed and he or she must be disqualified. . . . Whether two representations are substantially related

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depends on the factual situation, legal questions, and the attorney's involvement in the two cases. . . . Information from the first representation must be material to the second."; "The rule against concurrent conflicts is less forgiving. An attorney will be automatically disqualified from simultaneously representing two clients with adverse interests without both clients' informed, written consent, even if the two matters have nothing in common.").

This is not to say that loyalty plays no part.

• Kim v. True Church Members of Holy Hill Cmty. Church, 187 Cal. Rptr. 3d 515, 528, 531, 531-32, 533 (Cal. Ct. App. 2015) (prohibiting a church's former co-counsel from cross-examining church officials; "When appellant's counsel sought to cross-examine Reverend Suh after respondent's counsel called him during his rebuttal case, the trial court heard appellant's counsel's argument for permitting cross-examination. After confirming that counsel had represented the WCP [Western California Presbytery] earlier in the litigation, it rejected appellant's arguments, stating, 'Once you undertake that representation, the case law makes it pretty clear that you cannot at a later time confront your own witnesses even if you are delegated in part to [co- counsel] Mr. Sohn representation of the WCP. . . . A bright line has to be drawn about clients not being subjected to examination by their counsel or former counsel even at a time period after it's alleged that the representation ceased.'" (internal citation omitted); "The ethical bar against acting in a manner adverse to a former client's interests implicates not just the duty to maintain client confidences, but the duty of loyalty, which counsel would have violated by cross-examining a representative of their former client."; "Although the California Supreme Court has emphasized the duty of maintaining client confidences in successive representation cases . . ., the duty of loyalty also plays a role, as recognized in the long-standing rule that 'an attorney is forbidden to do either of two things after severing his relationship with a former client. He may not do anything which will injuriously affect his former client in any manner in which he formerly represented him nor may he at any time use against his former client knowledge or information acquired by virtue of the previous relationship.'" (citation omitted); "In Hernandez [Hernandez v. Paicius, 109 Cal. App. 4th 452, 467 (2003), the plaintiff initially sought to limit cross-examination of the plaintiff's expert witness, on the grounds that the law firm representing the defendant was simultaneously representing the plaintiff's expert in an unrelated matter. The trial court limited the scope of cross- examination to exclude any cases in which defense counsel previously or currently represented the expert. However, the court allowed defense counsel to impeach the expert based on information obtained from the public record, even though the information related to the same cases giving rise to the conflict of interest. . . . We construe the Hernandez opinion as recognizing the crucial role trial courts play in achieving the delicate balance necessary in the exercise of the court's inherent authority, and decline to

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second-guess the appropriate balance struck by the trial court in this case between appellants' right to retain counsel of their choice and the law firm's duty of loyalty to its former client." (emphasis added)).

For instance, courts generally reject lawyers' argument that they can represent a

former joint client adverse to another former joint client – because by definition the

lawyer had no confidential information from the latter that the former did not also

possess.

• Fiduciary Trust Int'l v. Superior Court, 160 Cal. Rptr. 3d 216 (Cal. Ct. App. 2013) (finding that a law firm which represented a husband and wife in estate planning could not now represent the husband's interest against the wife's interest after their deaths; rejecting the law firm's argument that the representation was proper, because by definition there would be no confidences because of the earlier joint representation; noting that the former client rule includes both a loyalty and an information component).

Unlike the analysis when a lawyer considers adversity to a current client, this

assessment therefore must consider the nature of the earlier representation, and the

substance of the information the lawyer learned or was likely to have learned in the

earlier representation. The bottom-line rule is that lawyers may not (absent consent) be adverse to a former client if:

• The adversity is in the "same" or "substantially related" matter as the earlier representation; or

• The lawyer acquired material confidential information that could now be used to the former client's disadvantage.

ABA Model Rule 1.9(b).1

1 ABA Model Rule 1.9(a) ("A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.").

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The ABA Model Rules can be somewhat confusing, because the information- based concern does not appear in the black letter rule itself, but rather in a comment that defines as "substantially related" any matter in which the lawyer might have acquired material confidential information that the lawyer could now use against the client.

Matters are "substantially related" for purposes of this Rule if they involve the same transaction or legal dispute or if there otherwise is a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client's position in the subsequent matter.

ABA Model Rule 1.9 cmt. [3] (emphasis added).

Interestingly, the ABA Model Rules take a different approach to a lawyer's adversity to a current and to a former client.

Under ABA Model Rule 1.7, a lawyer faces a "concurrent conflict of interest" if the lawyer's representation of one client "will be directly adverse to another client" or if there is a "significant risk" with a lawyer's representation of a client will be "materially limited by the lawyer's responsibilities to another client [or] a former client." ABA Model

Rule 1.7(a). In that circumstance, a lawyer may proceed only (among other things) if the client consents and if "the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client." ABA Model Rule

1.7(b)(1). In other words, ABA Model Rule 1.7 contains what amounts to an objective

"reasonable lawyer" standard that might prohibit the lawyer's representation despite client consent.

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In contrast, ABA Model Rule 1.9 allows a lawyer (if the former client provides

informed consent) to "represent another person in the same or substantially related

matter in which [a new client's interests] are materially adverse to the interests of the former client." ABA Model Rule 1.9(a). That rule does not contain an explicit

"reasonable lawyer" standard. However, a lawyer assessing a possible representation

adverse to a former client presumably has to look at both ABA Model Rule 1.9 and ABA

Model Rule 1.7. If an adversity to the former client would trigger the "materially limited"

provision of ABA Model Rule 1.7(a)(2), the "reasonable lawyer" standard of ABA Model

Rule 1.7(b)(1) presumably applies). One would think that the "materially limited"

standard would automatically apply if the lawyer took a representation adverse to a

former client "in the same or substantially related matter" in which the lawyer formerly

represented the client, but the lack of a "reasonable lawyer" standard in ABA Model

Rule 1.9 at least implies that such is not the case.

The Restatement takes the same approach. Restatement (Third) of Law

Governing Lawyers § 132 (2000). The Restatement also builds the information issue

into the "substantially related" definition, by indicating that

the current matter is substantially related to the earlier matter if: (1) the current matter involves the work the lawyer performed for the former client; or (2) there is a substantial risk that representation of the present client will involve the use of information acquired in the course of representing the former client, unless that information has become generally known.

Restatement (Third) of Law Governing Lawyers § 132 (2000).

A 2008 District of Columbia legal ethics opinion provided a useful analysis.

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A lawyer who has formerly represented a client in a matter is prohibited from representing another person in the same or substantially related matter in which that person's interests are materially adverse to the interests of the former client, unless the former client gives informed consent. Two matters are "substantially related" to one another if there is a substantial risk that confidential factual information as would normally have been obtained in the prior representation is useful or relevant in advancing the client's position in the new matter. Subject to certain conditions, a lawyer may limit the scope of the new representation such that factual information normally obtained in the prior matter would be legally irrelevant to the advancement of the current client's position in the new matter. Specifically, by agreeing only to represent a client as to a discrete legal issue or with respect to a discrete stage in the litigation, a lawyer may be able to limit the scope of the representation such that the new matter is not substantially related to the prior matter. Restrictions on the scope of the representation that effectively ensure that there is no substantial risk that confidential factual information as would normally have been obtained in the prior representation would be useful or relevant to advance the client's position in the new matter may, under certain circumstances, be sufficient to avoid a conflict of interest."

District of Columbia LEO 343 (2/2008). The D.C. Bar also noted that

[t]he Restatement likewise suggests that "the lawyer may limit the scope of representation of a later client so as to avoid representation substantially related to that undertaken for a previous client." RESTATEMENT OF THE LAW GOVERNING LAWYERS at § 132 cmt. E (2007). . . .

Even if it is permissible generally to restrict a representation to avoid substantial overlap with a prior representation, it may not be possible in a particular case. Private lawyers, like former government lawyers, should "err well on the side of caution." We have considered two different categories in which a lawyer may avoid the applicability of D.C. Rule 1.9 -- by agreeing only to represent a client as to a discrete legal issue and by agreeing to represent a client with respect to a discrete stage of the litigation. While we recognize that these categories can, under appropriate conditions, allow for lawyers to represent clients without violating D.C. Rule 1.9, we also appreciate

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that it may prove very difficult for lawyers to do so in fact. Where confidential information from the prior representation could be useful in or relevant to the new representation -- however it may be limited or circumscribed -- then the substantial-relationship test is satisfied, and the new representation may not proceed without the consent of the former client.

Id. (citation omitted).

The harshness of this information-based rule becomes apparent when combined

with the general principle imputing any individual lawyer's disqualification to all other

lawyers in that firm. ABA Model Rule 1.10. That concept makes sense in a loyalty-

based context (as with adversity to a current client), but seems out of place when the

prohibition rests on information (which of course is useless to any lawyer who does not

possess the information).

Nevertheless, the general imputation rule normally precludes a law firm from

avoiding a conflict in this setting by either expecting any of its lawyers with material

confidential information to honor their ethics duties of confidentiality, or even erecting

"ethics screens" around those lawyers so that others in the firm (untainted by the

information) may pursue adversity to the former client.

Best Answer

The best answer to this hypothetical is (C) IF ANY LAWYER AT THE FIRM HAS

PERTINENT MATERIAL CONFIDENTIAL INFORMATION FROM AN EARLIER

REPRESENTATION THAT COULD BE USED AGAINST THE FORMER CLIENT, NO

LAWYER IN THE FIRM MAY BE ADVERSE TO THE FORMER CLIENT. N 3/12

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Defining the End of a Relationship

Hypothetical 23

About six months ago, a doctor asked you to prepare an offer for an office building she was interested in purchasing. She gave you the figure to include in the offer, and you prepared and sent her a standard offer for her review. You have not heard from her since you sent her the draft offer, and you have no idea whether she ever presented it to the seller. This morning, you received a call from a company who wants you to pursue a trademark infringement action against the doctor (based on some phrases that the doctor uses in her marketing).

Without the doctor's consent, can you represent the company in the trademark action against the doctor?

(A) YES

(B) NO

MAYBE

Analysis

Every state's ethics rules recognize an enormous dichotomy between a lawyer's freedom to take matters adverse to a current client and a former client.

Absent consent, a lawyer cannot take any matter against a current client -- even if the matter has no relationship whatever to the representation of that client. ABA

Model Rule 1.7. In stark contrast, a lawyer may take a matter adverse to a former client unless the matter is the "same or . . . substantially related" to the matter the lawyer handled for the client, or unless the lawyer acquired material confidential information during the earlier representation that the lawyer could now use against the client. ABA

Model Rule 1.9.

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Given this difference in the conflicts rules governing adversity to current and former clients, lawyers frequently must analyze whether a client is still "current" or can be considered a "former" client for conflicts purposes.

Absent some adequate termination notice from the lawyer, it can be very difficult to determine if a representation has ended for purposes of the conflicts analysis.

ABA Model Rule

Interestingly, the meager guidance offered by the ABA Model Rules appears in the rule governing diligence, not conflicts.

Unless the relationship is terminated as provided in Rule 1.16, a lawyer should carry through to conclusion all matters undertaken for a client. If a lawyer's employment is limited to a specific matter, the relationship terminates when the matter has been resolved. If a lawyer has served a client over a substantial period in a variety of matters, the client sometimes may assume that the lawyer will continue to serve on a continuing basis unless the lawyer gives notice of withdrawal. Doubt about whether a client-lawyer relationship still exists should be clarified by the lawyer, preferably in writing, so that the client will not mistakenly suppose the lawyer is looking after the client's affairs when the lawyer has ceased to do so.

ABA Model Rule 1.3 cmt. [4].

ABA Legal Ethics Opinions

In one fairly old legal ethics opinion, the ABA provided an analysis that adds to the confusion rather than clarifies.

[T]he Committee notes that if there is a continuing relationship between lawyer and client, even if the lawyer is not on a retainer, and even if no active matters are being handled, the strict provisions governing conflicts in simultaneous representations, in Rule 1.7, rather than the more permissible former-client provisions, in Rule 1.9, are likely to apply.

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ABA LEO 367 (10/16/92). Thus, the ABA did not provide any standard for determining when a representation terminates in the absence of some ongoing matter.

In ABA LEO 481 (4/17/18), the ABA explained that lawyers must disclose their serious mistakes to current clients, but not to former clients.1 Because lawyers have very different duties depending on whether they currently represent a client, the ABA provided a very helpful analysis of when attorney-client relationships end.

Substantive law, rather than rules of professional conduct, controls whether an attorney-client relationship exists, or once established, whether it is ongoing or has been concluded. Generally speaking, a current client becomes a former client (a) at the time specified by the lawyer for the conclusion of the representation, and acknowledged by the client, such as where the lawyer's engagement letter states that the representation will conclude upon the lawyer sending a final invoice, or the lawyer sends a disengagement letter upon the completion of the matter (and thereafter acts consistently with the letter); (b) when the lawyer withdraws from the representation pursuant to Model Rule of Professional Conduct 1.16; (c) when the client terminates the representation; or (d) when overt acts inconsistent with the continuation of the attorney-client relationship indicate that the relationship has ended. If a lawyer represents a client in more than one matter, the client is a current client if any of those matters is active or open; in other words, the termination of representation in one or more

1 ABA LEO 481(4/17/18) (“The Model Rules require a lawyer to inform a current client if the lawyer believes that he or she may have materially erred in the client’s representation. Recognizing that errors occur along a continuum, an error is material if a disinterested lawyer would conclude that it is (a) reasonably likely to harm or prejudice a client; or (b) of such a nature that it would reasonably cause a client to consider terminating the representation even in the absence of harm or prejudice. The lawyer must so inform the client promptly under the circumstances. Whether notification is prompt is a case- and fact-specific inquiry.”; “No similar duty of disclosure exists under the Model Rules where the lawyer discovers after the termination of the attorney-client relationship that the lawyer made a material error in the former client’s representation.”; “Good business and risk management reasons may exist for lawyers to inform former clients of their material errors when they can do so in time to avoid or mitigate any potential harm or prejudice to the former client.”; explaining that an attorney-client relationship ends when the engagement letter specifies such a time, the lawyer or the client explicitly end the relationship, “when overt acts inconsistent with the continuation of the attorney-client relationship indicate that the relationship has ended,” or “when it would be objectively unreasonable to continue to bind the parties to each other”; noting that an “episodic” client might be a continuing client in the absence of any ongoing matter if the client periodically engaged the lawyer, and the client “reasonably expects that the professional relationship will span any [such] intervals and that the lawyer will be available when the client next needs representation”). n-19

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matters does not transform a client into a former client if the lawyer still represents the client in other matters.

Absent express statements or overt acts by either party, an attorney-client relationship also may be terminated when it would be objectively unreasonable to continue to bind the parties to each other. In such cases, the parties' reasonable expectations often hinge on the scope of the lawyer's representation. In that regard, the court in National Medical Care, Inc. v. Home Medical of America, Inc. [15 Mass. L. Rptr. 256 (Mass. Super. Ct. 2002)], suggested that the scope of a lawyer’s representation loosely falls into one of three categories: (1) the lawyer is retained as general counsel to handle all of the client's legal matters; (2) the lawyer is retained for all matters in a specific practice area; or (3) the lawyer is retained to represent the client in a discrete matter.

For all three categories identified by the National Medical Care court, unless the client or lawyer terminates the representation, the attorney-client relationship continues as long as the lawyer is responsible for a pending matter. With respect to categories one and two above, an attorney- client relationship continues even when the lawyer has no pending matter for the client because the parties reasonably expect that the lawyer will handle all matters for the client in the future as they arise. In the third category, where a lawyer agrees to undertake a specific matter, the attorney- client relationship ends once the matter is concluded.

Although not identified by the National Medical Care court, another type of client is what might be called an episodic client, meaning a client who engages the lawyer whenever the client requires legal representation, but whose legal needs are not constant or continuous. In many such instances, the client reasonably expects that the professional relationship will span any intervals and that the lawyer will be available when the client next needs representation. If so, the client should be considered a current client. In other instances, it is possible that the attorney-client relationship ended when the most recent matter concluded. Whether an episodic client is a current or former client will thus depend on the facts of the case.

Id. (footnotes omitted).

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ATEC Commentaries

The ACTEC Commentaries provide an analysis, but also without any definitive

guidance.

[T]he lawyer may terminate the representation of a competent client by a letter, sometimes called an 'exit' letter, that informs the client that the relationship is terminated. The representation is also terminated if the client informs the lawyer that another lawyer has undertaken to represent the client in trusts and estates matters. Finally, the representation may be terminated by the passage of an extended period of time during which the lawyer is not consulted.

American College of Trust & Estate Counsel, Commentaries on the Model Rules of

Professional Conduct, Commentary on MRPC 1.4, at 57 (4th ed. 2006),

http://www.actec.org/Documents/misc/ACTEC_Commentaries_4th_02_14_06.pdf

(emphasis added).

Legal Ethics Opinions

A 2005 New York City legal ethics opinion followed the fairly lawyer-friendly approach.

• New York City LEO 2005-05 (6/2005) (analyzing unforseeable conflicts; presenting one scenario as follows: "A law firm has advised Client A for several years regarding various intellectual property licensing issues. The law firm has also advised Client B for several years on general corporate transactional matters not involving intellectual property licensing, including current negotiations with Company C to form a joint venture. During the course of those negotiations, Client A acquires Company C. Upon learning of the merger, the law firm seeks to obtain conflict of interest waivers from Clients A and B so that it may continue to represent both clients in their respective matters. Client A agrees to provide the necessary conflict of interest waiver, but Client B does not. May the law firm continue to represent at least one of the clients, and if so, may the law firm choose which client to represent?"; "The rules governing when a current client becomes a former client for conflicts purposes are beyond the scope of this opinion but in determining whether this opinion applies the lawyer must consider whether

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even a client for whom the lawyer has done no work for a significant period of time is, in fact, a current client under the conflicts rules. This analysis involves a delicate fact-specific inquiry. See, e.g. International Business Machines Corp. v. Levin, 579 F.2d 271, 281 (3d Cir. 1978) ('[a]lthough CBM had no specific assignment from IBM on hand on the day the antitrust complaint was filed . . . the pattern of repeated retainers, both before and after the filing of the complaint, supports the finding of a continuous relationship'); Oxford Systems, inc. v. CellPro, Inc., 45 F. Supp. 2d 1055, 1060 (W.D. Wash. 1999) (law firm that represented a client intermittently from 1985 to May 1997 deemed still to represent that client in April 1998 though no matters were then currently pending); S.W.S. Financial Fund A v. Salomon Bros., Inc., 790 F. Supp. 1392, 1398 (N.D. Ill. 1992) ('once established, a lawyer-client relationship does not terminate easily,' quoting the comment to ABA M.R. 1.3); Shearing v. Allergan, Inc., 1994 WL 382450 (D. Nev. 1994) (client represented by law firm intermittently over 13 years but which had not given work to firm for more than a year was still a current client for conflict purposes); See also D.C. Bar Ethics Opinion 292 (1999) (where a law firm represents a client on an ongoing basis on a discrete legal issue that may be raised in multiple proceedings and involves common facts, legal theories, parties, claims and defenses, the representation begins when the law firm first begins to provide these legal services, not when the particular matter that led to the conflict began)." (emphasis added)).

The case law is equally ambiguous, although some cases require some dramatic event or affirmative action by the lawyer before finding the representation to have ended.

• Sheppard, Mullin, Richter & Hampton, LLP v. J-M Mfg. Co., 425 P.3d 1, 14-15 (Cal. 2018) (finding that the arbitration clause and the rest of a retainer agreement between the Sheppard Mullin firm and its client J-M Manufacturing was void, because Sheppard Mullin relied on reciprocal prospective consents in its retainer agreement with J-M Manufacturing and with another client, without telling either client that there was an actual conflict because Sheppard, Mullin simultaneously represented a public entity plaintiff on unrelated matters while also representing J-M, a federal qui tam action brought on behalf of the other public entity Sheppard Mullin represented; nevertheless finding that Sheppard Mullin may be entitled to fees despite the unenforceable retainer agreement, and remanding to the trial court to determine if Sheppard Mullin could recover one million dollars in unpaid fees from J-M and could retain rather than have to return, two million dollars in fees that J-M had already paid the firm, also describing when a representation ends for purposes of the conflicts analysis; “Under comparable circumstances, where a law firm and client have had a long-term course of

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business calling for occasional work on discrete assignments, courts have generally held the fact that the firm is not performing any assignment on a particular date and may not have done so for some months—or even years— does not necessarily mean the attorney-client relationship has been terminated. In International Business Machines Corp. v. Levin (3d Cir. 1978) 579 F.2d 271, 281, for example, the court found a continuous attorney-client relationship existing at the time a law firm took on adverse representation even though the law firm ʽhad no specific assignment from IBM on hand on the day the antitrust complaint was filed and even though [the law firm] performed services for IBM on a fee for service basis rather than pursuant to a retainer arrangement.ʽ As the court explained, ʽthe pattern of repeated retainers, both before and after the filing of the complaint, supports the finding of a continuous relationship.ʽ (Ibid.; see also, e.g., M’Guinness v. Johnson (2015) 243 Cal.App.4th 602, 616–617 [196 Cal. Rptr. 3d 662] [several-month gap following completion of last assignment did not terminate attorney-client relationship]; Kabi Pharmacia AB v. Alcon Surgical, Inc. (D.Del. 1992) 803 F.Supp. 957, 962 [allegedly ‘sporadic’ nature of firm’s work, and ‘lull’ in such work at time of adverse representation, does not support finding there was no ongoing attorney-client relationship]; SWS Financial Fund A v. Salomon Bros. Inc. (N.D.Ill. 1992) 790 F.Supp. 1392, 1395, 1399 [continuing relationship found where firm had billed client for 214 hours over a 13-month period on a number of discrete projects, the last ending two months before firm began adverse representation]; Manoir-Electroalloys Corp. v. Amalloy Corp. (D.N.J. 1989) 711 F.Supp. 188, 193–195 [individual was law firm’s current client in 1988, even though firm had last performed work for individual in 1983 to 1984, where the two had a long-standing arrangement involving legal work on a number of matters].) The central question is whether the client would reasonably understand that the representation has terminated (see Rest.3d Law Governing Lawyers, § 31, com. h, p. 223; id., § 18), and courts are properly reluctant to impose on a client the burden of discerning that a law firm that has done periodic work for it has ceased to be the client’s attorney, simply by lapse of time.” (alterations in original)).

• Guardant Health, Inc. v. Found. Med., Inc., Case No. 17-cv-03590-JSC, 2017 U.S. Dist. LEXIS 183713, at *18, *19, *20-21 (N.D. Cal. Nov. 6, 2017) (disqualifying Ropes & Gray from adversity to a client because the law firm had not affirmatively terminated the representation of its current adversary, but instead relied on the adversary's failure to respond to the law firm's statement that it assumed the relationship had ended; “Ropes & Gray argues that Guardant discharged Ropes & Gray when Mr. Haley [Ropes & Gray lawyer] ignored Mr. Storella's [Client's outside intellectual property lawyer] email asking Mr. Haley to 'confirm that you can provide Guardant with an opinion letter by May 1. If not, I'll have to find another firm to work on it.'. . . This argument, too, fails to persuade.”; “[T]he Court rejects Ropes & Gray's argument that because Mr. Storella expressed frustration at how long it was

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taking Mr. Haley to complete a promised task and therefore threatened to find another firm if Ropes & Gray did not complete the project by May 1, Ropes & Gray could just let the date pass and then assume that it has been terminated as counsel. An attorney cannot just ignore his or her client and then assume that the client terminated the relationship; this is grounds for referral for disciplinary action, not grounds for deeming the attorney-client relationship over. If Ropes & Gray intended to terminate its representation, it needed to affirmatively withdraw from representation by sending a disengagement letter, final bill, returning Guardant's file or more informally through a follow-up email or phone call. Absent it doing so, its representation continued.” (footnote omitted); “Ropes & Gray's emphasis on its creation of an ethical wall such that there was no breach of Guardant's confidentiality misses the mark. 'Although an ethical wall may, in certain circumstances, prevent a breach of confidentiality, it cannot, in the absence of an informed waiver, cure a law firm's breach of its duty of loyalty to its client.' . . . The interests of Guardant and FMI are directly in conflict in this litigation – Ropes & Gray cannot represent both without violating its duty of loyalty.” (emphases added)).

• Cesso v. Todd, 82 N.EW.3d 1074, 1076, 1079-80 (Mass. App. Ct. 2017) (holding that a lawyer's notice of withdrawal did not necessarily end an attorney-client relationship; “The parties do not agree on when the attorney- client relationship began or ended.”; “What is undisputed is that on July 28, 2008, Todd and Todd & Weld filed a notice of withdrawal of appearance dated July 25, 2008, in the divorce action.”; “Todd expressly told Cesso that, after Todd's withdrawal as counsel of record, Todd and Quigley would 'continue to work together and consult on [Cesso's] case.' This was consistent with the established division of labor, with Todd setting strategy and Quigley executing that strategy. Cesso took actions, such as copying Todd on e-mails, corroborating that Cesso thought Todd was still working on the case. Resolving all evidentiary inferences in favor of Cesso, Todd took no steps to disabuse Cesso of the notion that he (Todd) was still working on the case, albeit in a behind-the-scenes role. Instead, Todd sent a billing cover letter that a reasonable person could read to indicate that he would continue to work and bill on the case. The record, though thin, is enough to permit – but not require – the finder of fact to draw the inference that Cesso reasonably believed that Todd was continuing to consult in the background.” (emphasis added)).

• Parallel Iron, LLC v. Adobe Sys. Inc., C.A. No. 12-874-RGA, 2013 U.S. Dist. LEXIS 29382, at *4-5, *5, *7-8, *8-9, *9, *13 (D. Del. Mar. 4, 2013) (analyzing a patent law firm's arguable continuing representation of a company that they sued on behalf of another client; finding that the law firm had not terminated the representation, so it could not pursue the case against the continuing client; "In December 2011, Mr. Fenster delivered two final opinion letters of non-infringement to Adobe, which were then orally presented in February

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2012 during a conference call. . . . Mr. Fenster avers that he asked whether any additional work was needed or requested by Adobe at that time, to which Adobe in-house personnel replied in the negative. . . . Mr. Martini, the Adobe declarant, avers that neither he nor anyone else at Adobe ever communicated an intention to terminate the relationship with RAK. . . . He further avers that Adobe expected at all times that it would be able to continue to rely on RAK as opinion counsel in the ongoing Manufacturers matter. . . . Adobe's dispute with Manufacturers is ongoing as of Mr. Martini's November 1, 2012 declaration, and RAK never actually notified Adobe that it would be unavailable to provide further opinion letter work on the Manufacturers matter."; "In July 2012, five months subsequent to the delivery of the most recent Manufacturers opinion letter, Parallel Iron engaged RAK to file suit against Adobe."; "The determination of whether an attorney-client relationship exists thus requires a client-centric focus. The analysis depends on the reasonableness of the client's belief regarding the status of the relationship. This requires a fact specific inquiry that depends on the client's history with the law firm. Here, the six year history between Adobe and RAK was sufficient to instill in Adobe a reasonable belief that it would not be sued by RAK, at least absent some sort of prior notice that RAK would no longer be available to serve as Adobe's opinion counsel. It was fair for Adobe to believe that its opinion counsel would not transform into adverse counsel without warning. RAK knew of the active nature of the Manufacturers engagement, as it billed time for 'Research dockets of prior and new Manufacturers patent infringement cases in [State]' in June 2011. . . . Developments in that litigation, including claim construction, would certainly bear on RAK's infringement analysis. RAK should thus have expected that Adobe would desire to rely on RAK's experience with the Manufacturers patents to provide any needed updates, just as had occurred during the Tech engagement."; "It is true that RAK would have been free to reject any Adobe request for further opinion letters. RAK, however, had never refused work from Adobe in the past, which strengthens the reasonableness of Adobe's belief that RAK would take further work and the relationship was ongoing."; "The fact that the law firm, however, may freely choose to end the relationship and refuse further business does not mean it is free to sue its client prior to making it clear that the relationship is over. It is the law firm's responsibility to ensure there are no questions regarding the status of its current client relationships. . . . It would have been a simple enough task for RAK to notify Adobe that it would no longer be available as opinion counsel."; declining to require the law firm to screen itself from co-counsel and the other cases it was handling against other defendants on behalf of the same client; "The complete bar of communication between RAK and co-counsel would seriously hamper RAK's ability to litigate on behalf of Parallel Iron in the other actions. This would result in considerable disruption and disproportionate punishment, considering the lack of RAK's bad faith or Parallel Iron's complicity in the conflict. Further, RAK is not in possession of any confidential information that

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is relevant to the instant suit. There is thus no need to order RAK to set up an 'ethical wall' between itself and co-counsel.").

• Johnson v. Riebesell (In re Riebesell), 586 F.3d 782, 789 (10th Cir. 2009) (holding that a lawyer had an attorney-client relationship with a client until the client terminated the relationship; "[W]e agree with the bankruptcy court, which held otherwise - an attorney-client relationship did exist because (1) the relationship did not formally terminate until March or April 2003, when Johnson terminated it.").

• Metro. Life Ins. Co. v. Guardian Life Ins. Co., No. 06 C 5812, 2009 U.S. Dist. LEXIS 42475, at *3, *4-5, *9-10, *10-11 (N.D. Ill. May 18, 2009) (denying plaintiff's motion to disqualify Winston & Strawn from representing defendant, although finding that Winston had improperly terminated its representation of MetLife on unrelated matters; "Winston determined that its projects for MetLife had been completed, although not formally terminated. Importantly, the investigation revealed that Winston's representation of MetLife was, at most, sporadic and did not involve regularly scheduled meetings, conference calls or daily communication. In turn, Anderson and Thar concluded that MetLife was not a current client and, since all matters were complete, Winston could formally terminate its relationship with MetLife and represent Guardian without a conflict. On March 13, 2009 Rogers sent an email to his contacts at MetLife, confirming that Winston was not working on any active matters. . . . Then, on March 16, 2009 Winston sent a letter to Karen Francis- Moorer (MetLife refers to Francis-Moorer as a 'paralegal,' while Winston calls her a 'billing contact'), explaining that Winston's representation had concluded."; "[I]t is well-settled that once an attorney-client relationship is established, it does not terminate easily. . . . Absent an express termination, 'something inconsistent with the continuation of the relationship must transpire in order to end the relationship.'. . . Examples of inconsistent conduct include: a client filing a grievance against his attorney; a client retaining another attorney; or a client refusing to pay his attorney's bill."; "In this case there is nothing inconsistent with Winston's relationship with MetLife. And, without a formal termination of the parties' relationship, MetLife reasonably could have considered itself a current client of Winston at the time Guardian approached Winston to represent it in this case. More importantly, the record is void of any evidence suggesting that MetLife and Winston contemplated an abrupt end to their relationship. In all respects, the representation continued even after Winston completed the immediate projects that MetLife assigned to the firm. See Perillo v. Johnson, 205 F.3d 775, 798-99 (5th Cir. 2000) ('Where the prior representation has not unambiguously been terminated, or is followed closely by the subsequent representation, there is more likely to be a conflict arising from defense counsel's representation of the first client . . . .'); IBM Corp. v. Levin, 579 F.2d 271, 281-82 (3d Cir. 1978) (ruling that client was current client for conflict of

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interest analysis even where attorney had no specific assignment from client at the time the attorney undertook the adverse representation); Manoir- Electroalloys Corp. v. Amalloy Corp., 711 F. Supp. 188, 194 (D.N.J. 1989) (finding client to be a current client even though the law firm was not actively providing legal services to the client at the time the suit was filed and had not done so for four years); see also Quinones v. Miller, No. 01 C 10752, 2003 U.S. Dist. LEXIS 9176, 2003 WL 21276429, at *29 (S.D.N.Y. June 3, 2003) (the 'mere passage of time do[es] not end the attorney-client relationship'); cf. Caban v. United States, 281 F.3d 778, 784 n.4 (8th Cir. 2002) (finding in a criminal case that a conflict based on a concurrent representation despite attorney's representation that work for the client was inactive)."; nevertheless finding that disqualification was not an appropriate remedy (emphasis added)).

• Comstock Lake Pelham, L.C. v. Clore Family, LLC, 74 Va. Cir. 35, 37-38 (Va. Cir. Ct. 2007) (opinion by Judge Thacher holding that a law firm which had last performed work for a client in August 2005 should be considered to still represent the client, because the law firm "never communicated to [the client] that [the law firm's] representation had been terminated. Regardless of who initiated the termination or representation, the Rules place the burden of communication squarely upon the lawyer. . . . Because the burden is upon the lawyer to communicate with the client upon the termination of representation, the lack of communication of same from [law firm] could lead one to reasonably conclude that the representation was ongoing. It was [law firm's] burden to clarify the relationship, and they failed to satisfy that burden.").

• GATX/Airlog Co. v. Evergreen Int'l Airlines, Inc., 8 F. Supp. 2d 1182, 1186, 1187 (N.D. Cal. 1998) (disqualifying the law firm of Mayer, Brown & Platt upon the motion of the Bank of New York; explaining that the law firm's "use of the word 'currently' to describe the MBP/BNY relationship evidences its longstanding and continuous nature. Some affirmative action would be needed to sever that type of relationship, and MBP assumed the relationship had not been severed." (emphasis added); also concluding that the Bank was a current client because "MBP [the firm] assisted BNY [the Bank] on a repeated basis whenever matters arose over a three-year period. Although MBP may or may not still have been working on matters for BNY when the January 30 complaint was filed, it is undisputed that MBP billed BNY through January 12."), vacated as moot, 192 F.3d 1304 (9th Cir. 1999).

• Mindscape, Inc. v. Media Depot, Inc., 973 F. Supp. 1130, 1132-33 (N.D. Cal. 1997) (finding that a law firm's attorney-client relationship with a client was continuing as long as the lawyer had a "power of attorney" in connection with a patent, was listed with the Patent & Trademark Office as the addressee for correspondence with the client, and had not yet corrected a mistake in a patent that had earlier been discovered).

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• Research Corp. Techs., Inc. v. Hewlett-Packard Co., 936 F. Supp. 697, 700 (D. Ariz. 1996) ("'The relationship is ongoing and gives rise to a continuing duty to the client unless and until the client clearly understands, or reasonably should understand that the relationship is no longer depended on.'" (emphasis added; citation omitted); denying Hewlett-Packard's motion to disqualify plaintiff's counsel).

• Shearing v. Allergan, Inc., No. CV-S-93-866-DWH (LRL), 1994 U.S. Dist. LEXIS 21680 (D. Nev. Apr. 4, 1994) (noting that the law firm had not performed any work for the client for over one year, but pointing to a letter that the law firm sent to the client indicating that they were a valuable client and that the firm remained ready to respond to the client's needs; granting motion to disqualify plaintiff's counsel).

• Alexander Proudfoot PLC v. Federal Ins. Co., Case No. 93 C 6287, 1994 U.S. Dist. LEXIS 3937, at *10 (N.D. Ill. Mar. 30, 1994) (holding that the insurance company could "assume" that the firm would continue to act as its lawyer if and when the need arose based on the law firm's prior service to the party and stating that "any perceived disloyalty to even a 'sporadic' client besmirches the reputation of [the] legal profession"), dismissed on other grounds, 860 F. Supp. 541 (N.D. Ill. July 27, 1994).

• Lemelson v. Apple Computer, Inc., Case No. CV-N-92-665-HDM (PHA), 1993 U.S. Dist. LEXIS 20132, at *12 (D. Nev. June 2, 1993) (quoting an earlier decision holding that "'the attorney-client relationship is terminated only by the occurrence of one of a small set of circumstances'" and listing those circumstances as one of three occurrences -- first, an express statement that the relationship is over, second, acts inconsistent with the continuation of the relationship, or third, inactivity over a long period of time (citation omitted); concluding that "[n]one of these events occurred in the instant action").

• SWS Fin. Fund A v. Salomon Bros., Inc., 790 F. Supp. 1392, 1398, 1403 (N.D. Ill. 1992) (finding that an attorney-client relationship existed between Salomon Brothers and a law firm which had periodically answered commodity law questions, and had finished its last billable project about two months before attempting to take a representation adverse to Salomon; finding that the law firm had the "responsibility for clearing up any doubt as to whether the client-lawyer relationship persisted" (emphasis added); ultimately concluding disqualification was inappropriate).

One unfortunate lawyer found that his letter announcing his move to another firm demonstrated continuing relationships with the clients he had represented at his former firm.

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• Krutzfeldt Ranch, LLC v. Pinnacle Bank, 272 P.3d 635, 639, 641, 642, 645 (Mont. 2012) (holding that a new law firm was disqualified for adversity to a client of a new hire, because the new hire had not adequately terminated representation of the client before joining the new firm, and because the new firm has not adequately screened the new lawyer, which the ethics rules would have permitted to avoid imputed disqualification; holding that the lawyer had entered into a retainer agreement with a client containing the following provision: "'Completing Our Services. We intend and expect to complete our services to your satisfaction. However, we will withdraw from representation if so requested by you. We may also withdraw if our fees are not paid timely or for a reason required or permitted by professional rules. At the conclusion of representation you may have on request a copy of any client files or papers, for which we would charge a reasonable copying cost. [Emphasis added.]'"; noting that "[t]he engagement letter did not state Hoskins's representation had concluded with the meeting held days earlier. Although not offered into evidence, the parties agreed the letter was sent with a bill of $2,375.00 for Hoskins's services thus far in the Krutzfeldt case. Both parties acknowledged the document did not say 'final bill' or otherwise indicate Hoskins had completed his services in the matter."; holding that the lawyer had not terminated the representation before joining a new firm that was representing the client's adversary; "The attorney-client relationship is not automatically terminated when a lawyer joins another firm. The 'present-client standard continues even though the representation ceases prior to filing of the motion to disqualify.'. . . An attorney 'cannot avoid the automatic disqualification rule applicable to concurrent representation by unilaterally converting a present client into a former client prior to the hearing on the motion for disqualification.'" (citation omitted); "The critical fact here is that, even if grounds for withdrawal existed under the terms of his engagement letter, Hoskins did not withdraw from his representation of the Krutzfeldts prior to accepting his new position. He never informed the Krutzfeldts that his work for them had concluded, never terminated his representation of them, and never advised them he was contemplating joining Crowley. The 'Dear Client' letter gave no indication the Krutzfeldts were no longer Hoskins's client. To the contrary, the letter contemplated future legal services: 'We feel we will be more responsive and efficient to your needs and the ever changing tax and regulatory world by utilizing the resources that Crowley Fleck has to offer.' 'Withdrawal is effective to render a representation "former" for the purposes of this Section if it occurs at a point that the client and lawyer had contemplated as the end of the representation.' Restatement (Third) of the Law Governing Lawyers § 132 cmt. c (2000) (emphasis added). In the absence of any affirmative steps by Hoskins prior to his transition, if the Krutzfeldts were Hoskins's current clients on December 31, 2010, they remained in an attorney-client relationship at the time he signed on as a member of the Crowley team."; "[W]e conclude Hoskins had a concurrent conflict of interest at the time he took the job with Crowley. After

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the July 19 meeting, Hoskins sent Harris a formal engagement letter indicating the prospective nature of his services. Hoskins's bill for his services did not indicate it was a 'final' bill, nor did he take any steps to conclude his relationship with the Krutzfeldts. That he was not consulted for the next several months was simply a matter of timing. Consistent with Harris's previous engagement of Hoskins, Hoskins's services only would be needed for particular components of the case. Following Harris's call to advise Hoskins of the upcoming settlement conference, Hoskins did nothing until sending Harris the form letter that advised all of Hoskins's clients he had joined Crowley. At no time did Hoskins advise Harris of any notice or intend to withdraw as counsel."; "When a lawyer is engaged in concrete discussions of future employment with adversary's law firm, the lawyer must promptly inform the client. 'Without effective client consent . . . the lawyer must terminate all further discussions concerning the employment, or withdraw from representing the client.' Restatement (Third) of the Law Governing Lawyers § 125 cmt. d. Unfortunately, neither protocol was followed in this case. By the time the conflict was disclosed, it was too late. The conflict was concurrent and thus imputed to Crowley. And, even had the Krutzfeldts become Hoskins's former clients, the measures Crowley took were inadequate to preserve Krutzfeldts' confidences. 'Where screening mechanisms are not immediately implemented, and are instead instituted only after the conflicted attorney's former client asserts the existence of a conflict, the ethical screen is not timely implemented.'" (citation omitted)).

Other courts seem to recognize that an attorney-client relationship can lapse without lawyer taking an affirmative step to terminate the relationship.

• AppSoft Dev., Inc. v. Diers, Inc., Case No. 3:13-cv-1520-J-32JBT, 2014 U.S. Dist. LEXIS 64982, at *5-6, *6, *8, *9 (M.D. Fla. May 12, 2014) (declining to disqualify a law firm which hired a lateral lawyer who had a role in what was essentially a dormant case; "Bechtold [lateral hire lawyer] last filed pleadings in the Roesler case in September 2011, when she filed the complaint and jury demand. . . . Defendants in that case filed a motion to dismiss on October 4, 2011. . . . After no other documents were filed in the case for more than two years, defendants filed a notice of lack of prosecution on February 13, 2014. . . . Until that time, AppSoft was unaware that the case remained open."; "Apparently unbeknownst to AppSoft, Bechtold left Mathis & Murphy for Marks Gray on May 1, 2013. . . . At that time, she gave Marks Gray a list of clients she was bringing with her from Mathis & Murphy. . . . That list did not include AppSoft. . . . Bechtold also, in conjunction with a senior partner at Mathis & Murphy, sent letters to those clients she sought to bring with her to Marks Gray. . . . She did not send a letter to AppSoft. . . . However, she also did not file a notice of withdrawal in the Roesler case."; "Here, the only evidence supporting an existing relationship is that Bechtold apparently forgot

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to file a motion to withdraw from the Roesler case. Even though Bechtold's 'appearance' may therefore still be technically continuing under the Florida Rules of Judicial Administration, she still lacks a current attorney-client relationship with AppSoft."; "First, an attorney-client relationship limited to a specific matter ends when that matter is resolved. R. 4-1.3 cmt. For all intents and purposes, the long dormant Roesler case was 'resolved' before the instant cases were initiated in December 2013 because AppSoft, the plaintiff in the Roesler action, believed it was resolved."; "Second, even if the rediscovery of the not-technically-closed Roesler case reopened the attorney- client relationship, that relationship would be with Mathis & Murphy, not Bechtold. When an attorney leaves the firm, the assumption is that she is not taking her clients with her." (emphases added)).

• Banning Ranch Conservancy v. Superior Court, 123 Cal. Rptr. 3d 348, 352 (Cal Ct. App. 2011) (holding that a lawyer's open-ended retainer agreement with the city entered into six years earlier did not render the city a current client when the lawyer had not provided services to the city under the agreement; "The 2005 agreements provide that the Shute firm would provide legal services to the City, on an 'as requested' basis, in connection with 'public trust matters of concern to [the City].' The agreements, however, conditioned such representation on the Shute firm's confirmation of its 'ability to take on the matter.' If such representation was requested and accepted, the agreed-upon rates were to be $250 per hour for partners and $215 per hour for associates. The City's supporting declarations showed the 2005 agreements never had been terminated."; "The Shute firm continued doing some minor legal work on another matter, but that matter concluded in early 2006. Other than the initial matter concerning mooring permit regulations, the City never requested that the Shute firm undertake any other legal work pursuant to the 2005 letter agreements."; overturning the trial court's disqualification order).

One court even held that an unnecessary withdrawal letter did not confirm the existence of a continuing attorney-client relationship.

• Regal Cinemas, Inc. v. Shops at Summerlin N., LP, No. 2:16-cv-02854-MCE- AC, 2017 U.S. Dist. LEXIS 149497, at *7-8, *8, *8-9, *9 (E.D. Cal. Sept. 14, 2017) (rejecting a client's argument that a law firm had dropped it like a “hot potato” and therefore could not handle a matter adverse to the now-former client; “At bottom, the issue of whether Loeb & Loeb must be qualified as counsel for Regal Cinemas hinges on whether the 2015 matter was concluded or ongoing when Loeb took on Regal as a client in October 2016. Under both the California Rules of Professional Conduct and the parties' engagement letter, Loeb's conduct in taking on Regal Cinemas as a client was proper if and only if the 2015 matter concerning HHC had concluded

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before October 2016. See Cal. R. Prof. Conduct 3-310; Frankenheimer Decl. ¶ 3, Ex. 1.”; “Loeb's October 2016 disengagement letter, which was sent the same day Loeb announced that it hired Mr. Hubsch – and the language in that letter indicating termination of the attorney-client relationship was 'effective immediately' – certainly weighs in favor of disqualification. But it is not unreasonable to believe that Loeb simply sent the letter in an abundance of caution, likely when someone realized late in the game that the addition of Mr. Heuber to the firm might pose a problem. Similarly, it is not reasonable to believe that the 'effective immediately' language contained in that letter was included by mistake (perhaps because the firm uses a boilerplate disengagement letter). The sending of an unnecessary disengagement letter is not enough to create a conflict where one didn't exist without the letter.” (footnote omitted); “The Court therefore must look beyond that single letter. In so doing, the court finds nothing that otherwise indicates the 2015 matter was ongoing, as Defendants claim. First, the agreement itself was limited in scope and provided that additional work 'may be agreed upon from time to time,' evincing the parties' apparent intent to enter into the 2015 agreement solely for the purpose of completing the subject transaction. See Banning Ranch Conservancy v. Super. Ct., 193 Cal. App. 4th 903, 911-915, 123 Cal. Rptr. 3d 348 (2011). That transaction was concluded upon execution of the relevant documents in January 2016, and with the exception of just two hours of work in June, Loeb performed no work on the matter after January.”; “Defendants' argument therefore relies on the fact that Loeb performed two hours of follow-up work in June 2016. Defendants claim these two hours indicate that the 2015 matter was ongoing and simply dormant from January to June, and again from June to the present. The Court is not so convinced. Two hours of work to wind up an engagement after five months of silence is not enough to indicate that a matter is continuing. Nor was it necessary for Loeb to open a new matter even if the 2015 matter had long been concluded, and its failure to do so does not necessarily indicate that the 2015 matter was still open. The follow-up work was just that – follow up. Without more, the Court is not inclined to disqualify counsel and deprive Plaintiff of the counsel of its choice.” (emphasis added)).

Thus, the safest (and in some courts, the only) way to terminate an attorney- client relationship is to send a "termination letter" explicitly ending the relationship.

Some lawyers (especially those who practice in the domestic relations area) routinely send out such letters.

However, most lawyers would find "termination letters" contrary to their marketing instincts. In fact, many lawyers continue to send e-mail alerts to former clients (usually

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addressed to "Clients and Friends"), inviting former clients to firm events, etc. All of

these steps are designed to bring future business, but of course they also provide

evidence of a continuing attorney-client relationship.

Unfortunately, the consent remedy does not provide a very promising avenue

either. A former client is not likely to feel any loyalty toward the lawyer who used to

represent him or her -- and therefore might be less inclined than a current client to grant

a consent to the lawyer who wishes to be adverse even on an unrelated matter.

Other Issues

Courts and bars have dealt with other related issues.

For instance, some courts have pointed to law firms' continuing possession of files or trust funds as indicia of an ongoing relationship.

• Seifert v. Unified Gov't of Wyandotte Cty., Case No. 11-2327-JTM, 2016 U.S. Dist. LEXIS 4883 (D. Kan. Jan. 14, 2016) (disqualifying a law firm from representing the defendant in a case brought by plaintiff who had been represented by the law firm in 1980; noting that the two law firm lawyers who had represented the plaintiff in that earlier matter had left the firm, but that the file was still at the firm; "The defendants further note that the two lawyers actively engaged in the Tomec [older case Tomec v. Seifert] defense have separated from the firm or are deceased. Nevertheless, Rule 1.10 requires disqualification. As the Response to the plaintiff's motion acknowledges, a search has revealed that the McAnay law firm has retained its file on the Tomec case."; "This file, defendants emphasize, 'has been stored in dead files and has not been stored at defense counsel's primary office for decades.' . . . They further represent, and the court freely accepts, that '[n]o attorney of the MVP law firm has read, reviewed, or examined the contents of the MVP law firm's archived file.' . . . But this is irrelevant because Rule 1.10 required disqualification because the law firm 'has information' which is confidential in nature and which is substantially related to the present lawsuit. The plain language of Rule 1.10 includes the physical retention of confidential information, whether or not it has been actively reviewed by the attorneys currently involved in the present action." (emphases added)).

• M'Guinness v. Johnson, 196 Cal. Rptr. 3d 662, 675, 677 (Cal. Ct. App. 2015) (holding that a law firm which represented a corporation owned equally by

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three shareholders could not represent one of the shareholders in counterclaims against the third shareholder and the company; pointing to the law firm's retention of TLC's (the corporation) funds in its escrow account; "Notwithstanding the agreement's language that the Firm would return its client's funds '[a]t the conclusion of [the] engagement,' there is no evidence the Law Firm, in fact, returned TLC's $1,147 deposit. In fact, Johnson's opposition, which included declarations from three attorneys of the Firm, was silent regarding the funds in the client trust account noted in the Firm's October 25, 2012 invoice. . . . The Firm's retention of TLC's funds supports the conclusion that the attorney-client relationship was ongoing." (footnote omitted); concluding that the law firm continued to represent TLC; "The Law Firm's actions controlling and limiting access by two of TLC's shareholders, officers, and directors to the aforementioned records suggest the Firm continued to act as TLC's corporate counsel as late as April 2013." (emphases added)).

One court assessed the issue whether conflicts acknowledgments apply to individual lawyers or to law firms.

• Mem. Op. & Order at 2, APCC Servs., Inc. v. AT&T Corp., Civ. A. No. 99-0696 (ESH) (D.D.C. July 6, 2011), ECF No. 157 (granting AT&T's motion to disqualify a lawyer from representing a plaintiff suing AT&T; explaining that a 1998 letter agreement with a lawyer's previous firm "bound him personally at the time it was signed, since it named him specifically"; holding that the lawyer continued to be disqualified even though he had moved to another firm in the meantime).

Best Answer

The best answer to this hypothetical is MAYBE.

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Irrelevance of the Time since the Representation Ended

Hypothetical 24

You represented an antique dealer for about ten years, ending in 1990. Another client just asked you to handle a lawsuit against the antique dealer.

Without your former client's consent, may you represent a client adverse to the antique dealer now that twenty years has passed since you represented the dealer?

(A) YES

(B) NO

MAYBE

Analysis

Unfortunately for lawyers wanting some certainty, there is no "statute of limitations" for the ethics rules' prohibition on adversity to a former client in a matter substantially related to the matter the lawyer handled for the client.

Courts have disqualified lawyers based on representations that had ended decades earlier.

• S. Burlington Cty. N.A.A.C.P. v. Twp. of Mount Laurel, Dkt. Nos. A-3809- & A-4847-14T4, 2016 N.J. Super. Unpub. LEXIS 1094, at *2 (N.J. Super. Ct. App. Div. May 12, 2016) (holding that a law firm could not represent defendants in an Affordable Housing lawsuit because one of the firm's lawyers had represented the plaintiffs in substantially related matter between 1986 and 1996; "The record on appeal demonstrates that Eisdorfer, now a member of Hill Wallack, was previously affiliated with the Office of the Public Advocate and represented the interests of the plaintiffs in that landmark case at least between 1986 and 1996." (footnote omitted)).

• McDonald v. City of Wichita, Case No. 14-1020-GEB, 2016 U.S. Dist. LEXIS 8822, at *2, *2-3, *14-15, *17 (D. Kan. Jan. 26, 2016) (disqualifying a law firm from representing defendant Wichita in a discrimination case because it had represented the plaintiff (City's prosecutor at the time) in an ethics charge twelve years earlier; "During her tenure there, she acted as lead prosecutor in the case of State v. Campbell [23 P.3d 176 (Kan. App. Ct. 2001)]. After the

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defendant Trennie Campbell was convicted of unintentional second-degree murder, the Kansas Court of Appeals reversed her conviction, finding the State's actions during the trial arose to the level of prosecutorial misconduct, requiring a new trial. In 2000, Plaintiff began working for the defendant City." (footnote omitted); "That representation was an ethics matter which arose out of Plaintiff's conduct in the Campbell trial. During that representation, Plaintiff confided in Ms. Cline [plaintiff's former lawyer] about her career as a prosecutor, her employment at the City, defendant Gary Rebenstorf, and Plaintiff's intent to work as a prosecutor over the course of her career. Plaintiff believes Ms. Cline used all of the information provided to her to advocate Plaintiff acted properly and ethically in the Campbell matter."; "The Court finds the information divulged by Plaintiff to Ms. Cline in the prior representation -- particularly her personal thoughts about her employment at the City, which is squarely at issue in this litigation -- could reveal Plaintiff's pattern of conduct as a prosecutor. Specifically, given the sensitive nature of Ms. Cline's prior representation of Plaintiff, the Court finds it highly likely the information divulged was of the most confidential nature. The prior representation focused on Plaintiff's career as a prosecutor -- her prior conduct in that position and her aspirations of continued employment. Plaintiff's livelihood was not only at issue, but arguably at stake. In this current matter, her employment as a prosecutor and subsequent discharge is likewise at issue. Despite the differences between the two cases, 'the underlying concern is the possibility, or appearance of the possibility, that [Ms. Cline] may have received confidential information during the prior representation that would be relevant to the subsequent matter in which disqualification is sought.'" (citation omitted); "The conflict issue escaped Plaintiff's notice until Ms. Cline entered her appearance. Similarly, Ms. Cline's representation of Plaintiff occurred several years prior during her work with another firm and likewise eluded her attention.").

• McDonald v. City of Wichita, Case No. 14-1020-GEB, 2016 U.S. Dist. LEXIS 8822, at *2, *2-3, *14-15, *17 (D. Kan. Jan. 26, 2016) (disqualifying a law firm from representing defendant Wichita in a discrimination case because it had represented the plaintiff (City's prosecutor at the time) in an ethics charge twelve years earlier; "During her tenure there, she acted as lead prosecutor in the case of State v. Campbell [23 P.3d 176 (Kan. App. Ct. 2001)]. After the defendant Trennie Campbell was convicted of unintentional second-degree murder, the Kansas Court of Appeals reversed her conviction, finding the State's actions during the trial arose to the level of prosecutorial misconduct, requiring a new trial. In 2000, Plaintiff began working for the defendant City." (footnote omitted); "That representation was an ethics matter which arose out of Plaintiff's conduct in the Campbell trial. During that representation, Plaintiff confided in Ms. Cline [plaintiff's former lawyer] about her career as a prosecutor, her employment at the City, defendant Gary Rebenstorf, and Plaintiff's intent to work as a prosecutor over the course of her career.

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Plaintiff believes Ms. Cline used all of the information provided to her to advocate Plaintiff acted properly and ethically in the Campbell matter."; "The Court finds the information divulged by Plaintiff to Ms. Cline in the prior representation -- particularly her personal thoughts about her employment at the City, which is squarely at issue in this litigation -- could reveal Plaintiff's pattern of conduct as a prosecutor. Specifically, given the sensitive nature of Ms. Cline's prior representation of Plaintiff, the Court finds it highly likely the information divulged was of the most confidential nature. The prior representation focused on Plaintiff's career as a prosecutor -- her prior conduct in that position and her aspirations of continued employment. Plaintiff's livelihood was not only at issue, but arguably at stake. In this current matter, her employment as a prosecutor and subsequent discharge is likewise at issue. Despite the differences between the two cases, 'the underlying concern is the possibility, or appearance of the possibility, that [Ms. Cline] may have received confidential information during the prior representation that would be relevant to the subsequent matter in which disqualification is sought.'" (citation omitted); "The conflict issue escaped Plaintiff's notice until Ms. Cline entered her appearance. Similarly, Ms. Cline's representation of Plaintiff occurred several years prior during her work with another firm and likewise eluded her attention."), vacated on other grounds, 2017 U.S. Dist. LEXIS 106744 (D. Kan. July 11, 2017).

• R & D Muller, Ltd. v. Fontaine's Auction Gallery, LLC, 906 N.E.2d 356, 358, 358-59 (Mass. App. Ct. 2009) (disqualifying plaintiff's lawyer, who had represented defendants many years earlier; "Affidavits and exhibits submitted in support of the motion to disqualify establish that, between 1980 and 1990, Cain Hibbard [plaintiff's lawyer] had represented the Fontaines [defendants in the current action] on personal and business matters. Among other things, in 1987, Cain Hibbard helped Dina Fontaine (Dina) incorporate Dina's Antiques, Inc., and advised her on the proper maintenance of corporate formalities. Two years later, on March 14, 1989, Cain Hibbard sent Dina a letter reminding her of the necessity of maintaining the corporate records of Dina's Antiques, Inc., so that they reflected the current state of the corporation accurately. The letter also advised Dina that 'these records are necessary to support the corporation's role as a separate entity, and they help to maintain a barrier against personal liability.' Shortly thereafter, on April 12, 1989, a Cain Hibbard paralegal wrote to Dina about updating her corporate minute book, and enclosed backdated stockholders' resolutions that she directed Dina to sign and return."; "Here, the judge determined that, even though considerable time had passed since Cain Hibbard represented the Fontaines, the attorneys had been exposed to confidential information that could be used to the Fontaines' disadvantage in the present case."; "The correspondence Cain Hibbard sent to Dina indicates that the firm had advised her and Dina's Antiques with respect to observing corporate formalities, in part to help 'maintain a barrier against personal liability,' and had provided her with

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backdated corporate resolutions to facilitate her belated compliance. In these circumstances, the judge could conclude in his discretion that Cain Hibbard had been exposed to confidential information germane to the present dispute and that the current and former matters are substantially related for purposes of rule 1.9(a).").

• Niemi v. Girl Scouts, 768 N.W.2d 385, 389, 389-90, 390 (Minn. Ct. App. 2009) (refusing to disqualify a lawyer from representing defendant in an employment discrimination case, although the same law firm had represented the plaintiff twenty-five years earlier in an employment discrimination case against another employer; "The second type of information identified by Niemi, her 'approach to litigation,' presents the weaker of the two arguments. As an initial matter, it is debatable whether this type of information can be described as 'confidential factual information.' Minn. R. Prof. Conduct 1.9 cmt. 3. It is not necessarily 'factual' in nature because it appears to consist primarily of Niemi's personal characteristics and behavioral tendencies or, more accurately, Roby's impressions of Niemi's personal characteristics and behavioral tendencies. See State ex rel. Ogden Newspapers, Inc. v. Wilkes, 211 W. Va. 423, 566 S.E.2d 560, 567 (W. Va. 2002) (stating that attorney's '[v]ague general impressions' about corporate client's 'philosophical outlook' did not warrant attorney's disqualification in subsequent lawsuit against corporation); Restatement (Third) of the Law Governing Lawyers § 132 cmt. d(iii) (2000) (stating that attorney's knowledge of manner in which client approaches litigation is not 'independently relevant' for purposes of substantial relation test, unless information is 'directly in issue or of unusual value in the subsequent matter'). In addition, the information is not necessarily 'confidential' because it may refer to information that is available to persons who are not part of the attorney-client relationship, such as opposing counsel, a court reporter transcribing a deposition, or court personnel, and perhaps even persons who know Niemi through social interactions. See Minn. R. Prof. Conduct 1.9 cmt. 3 ('Information that has been disclosed to the public or to other parties adverse to the former client ordinarily will not be disqualifying.'); see also Restatement (Third) of the Law Governing Lawyers § 132(2) (2000) (stating that rules do not restrict attorney's use of information that has become 'generally known')."; explaining that because "this type of information exists in practically every lawsuit," finding that such information would disqualify a lawyer "effectively prevent[s] an attorney from taking a position adverse to a former client for the remainder of the attorney's career. The drafters of the rules could have imposed a lifetime ban on being adverse to a former client, but the drafters obviously declined to do so."; ultimately concluding that "information consisting of Niemi's 'approach to litigation' does not justify a conclusion that the prior lawsuit and the present lawsuit are 'substantially related matters.' We reach this conclusion without considering whether this type of information retains any relevance or usefulness 25 to 30 years after it is acquired.").

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On the other hand, it should go without saying that a lawyer's earlier acquisition of information that has now become stale often will not preclude adversity to the former client from whom the lawyer acquired the information.

• ABA Model Rule 1.9 cmt. [3] ("Information acquired in a prior representation may have been rendered obsolete by the passage of time, a circumstance that may be relevant in determining whether two representations are substantially related.").

• Rhode Island LEO 2017-05 (11/9/17) (“The inquiring attorney represented individuals in the formation of a real estate investment company (hereinafter, Company A). Company A has located a potential real estate deal in which it would be a minority investor in Company B. Company B is developing a parcel of property located in Massachusetts (hereinafter, the Development). The inquiring attorney proposes to represent Company A who would be investing with others in the Development.”; “Company B is an affiliate of real estate developer Company C. Company C is a client of the inquiring attorney's former law firm. While he/she was an associate at the law firm, the inquiring attorney worked with other lawyers in the firm on several of Company C's real estate developments. The inquiring attorney states that given the lapse of time, any confidential information he/she may have acquired in the representation of Company C is likely stale. The legal services that the inquiring attorney provided to Company C were unrelated to the Development.”; “The inquiring attorney may undertake the representation of Company A in a real estate investment transaction with Company B, an affiliate of his/her former client Company C, without the consent of Company C. The inquiring attorney must abide by Rule 1.9(c) regarding information relating to the former representation.” (emphasis added)).

Best Answer

The best answer for this hypothetical is MAYBE.

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Irrelevance of the Representation's Duration

Hypothetical 25

A former client just filed a motion to disqualify your firm from handling a matter adverse to it. You check your time records, and discover that one of your lawyers spent less than two hours working for that client during the very brief time that you handled a matter for it.

Without the former client's consent, can you take a matter adverse to the former client whom you represented for less than two hours?

(A) YES

(B) NO

MAYBE

Analysis

Just as there is no statute of limitations on the prohibition against lawyers taking

matters adverse to a former client that are "substantially related" to the matter the

lawyer handled for the client, so there is no bright-line rule governing the duration of a

representation that could result in disqualification.

Several courts have disqualified lawyers who represented clients for only a very short period of time.

• Dorothy Atkins, Quinn Emanuel DQ'd From SoCal Edison Woolsey Fire Cases, Law360, May 31, 2019 ("A California judge disqualified Quinn Emanuel Urquhart & Sullivan LLP Thursday from representing wildfire victims in litigation against Southern California Edison over last fall's deadly Woolsey Fire, finding that the utility likely shared confidential information with the firm in 2017 meetings that have a 'substantial relationship” to this case.'"; "In a two-page order, Los Angeles County Superior Court Judge William F. Highberger said SCE made a 'persuasive showing' that it shared material confidential information with Quinn Emanuel attorneys, including partner Kenneth R. Chiate, during a December 2017 meeting in which the firm sought to represent the utility in litigation over the 2017 Thomas wildfire. During the meeting and in strategy follow-up calls after, the firm and SCE discussed

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potential defense arguments, although SCE didn’t end up hiring the firm, the judge said. That is enough to disqualify the firm from representing the wildfire victims in the current litigation, Judge Highberger said.").

• Village of Tinley Park v. Connolly, No. 17 C 3271, 2018 U.S. Dist. LEXIS 26279, at *2-3, *3, *12-13 (N.D. Ill. Feb. 15, 2018) (disqualifying a lawyer from adversity to a former client from whom the lawyer learned confidential information during a twenty minute phone call; “[I]n 2016, while he was serving as the Village's attorney on these matters, both Buckeye and the Department of Justice ('DOJ') sued the Village for alleged violations of federal fair housing laws. After DOJ filed its lawsuit against the Village, the Village Manager, David Neimeyer, contacted Murphey and set up a phone call for the purpose of discussing the DOJ Case. The call took place on December 9, 2016. In addition to Murphey and Neimeyer, the now-former Mayor of Tinley Park, David Seaman, was also on the call.”; “The call lasted approximately twenty minutes, during which time the participants discussed the DOJ case and Neimeyer and Seaman provided Murphey with details regarding the Reserve development, which is the subject of both the DOJ and Buckeye Cases.”; “Neither party states what level of evidence is necessary to rebut the presumption that Murphey received relevant confidential information during the phone call. However, the statements above are plainly not enough. It is unlikely that over the course of a twenty-minute conversation regarding one case, the Village would not have disclosed any of its thinking about potential liability, potential defenses it may raise, or other confidential facts that could influence their decision to settle. Murphey seems to assert that they had a phone call, and without reviewing the pleadings, defenses, or any other facts, he simply advised the Village to settle the case quickly based on what he had read in the press alone. Beyond being a poor way to provide advice to a client (or even an associate simply seeking 'insights'), it begs the question of what they discussed for twenty minutes. Therefore, the Court finds that Connolly has not rebutted the presumption that Murphey received relevant confidential during the phone call.” (emphasis added)).

• Quinn v. Georgilas, 16 LCR 23, 2008 Mass. LCR LEXIS 8 (Mass. Land Ct. Jan. 11, 2008) (disqualifying a law firm which had spent only 5.37 hours representing the former client three years earlier).

• El Camino Res., Ltd. v. Huntington Nat'l Bank, 623 F. Supp. 2d 863, 875, 876, 877, 878, 879 (W.D. Mich. 2007) (assessing a situation in which Pepper Hamilton acted as local counsel for a company, billing 2.5 hours during the first six months of 2007; explaining that Pepper Hamilton sought the client's consent to represent another client adverse to it, but was turned down; explaining that Pepper Hamilton later concluded that "a conflict of interest waiver was not necessary after all" because of an earlier consent the client had provided the firm; ultimately finding that the consent was not sufficient, and disqualifying Pepper Hamilton from adversity to its client; "Ethical rules

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involving attorneys practicing in the federal courts are ultimately questions of federal law. The federal courts, however, are entitled to look to the state rules of professional conduct for guidance."; "The law makes no distinction between 'lead' and 'local' counsel in assessing their ethical duties. . . . There are no small or unimportant clients. Pepper Hamilton cannot and does not deny that ePlus Group was an active client of the firm when Pepper Hamilton agreed to undertake the representation of Huntington National Bank to oppose the claims of ePlus in this case." (citation omitted); "The courts universally hold that a law firm will not be allowed to drop a client in order to resolve a direct conflict of interest, thereby turning a present client into a former client."; "Pursuant to this universal rule, the status of the attorney/client relationship is assessed at the time the conflict arises, not at the time the motion to disqualify is presented to the court."; "This ethical rule is not triggered only when the attorney's motives are selfish or otherwise suspect. The rule vindicates the attorney's fundamental duty of loyalty: the breach of ethics is not triggered by bad motive or excused by good motive."; "A law firm is not privileged to extinguish its duty of loyalty to a present client by unilaterally turning it into a former client.").

• United States Filter Corp. v. Ionics, Inc., 189 F.R.D. 26 (D. Mass. 1999) (finding in a declaratory judgment action that a law firm could not handle a matter adverse to a former client, although the pertinent lawyer had spent only 1.6 hours representing the former client).

• Elan Transdermal Ltd. v. Cygnus Therapeutic Sys., 809 F. Supp. 1383, 1388, 1390 (N.D. Cal. 1992) ("The fact that Cost and Rothman billed only a short period of time does not preclude their work from being substantially related to the present litigation."; explaining that lawyers presumably discuss their cases with their colleagues; "Those attorneys most actively engaged on Cygnus projects shared a small office with other attorneys still with the firm. Chu, now the partner in charge of the representation of Elan, was in and out of the Menlo Park office. The presumption of shared confidences is based on the common-sense notion that people who work in close quarters talk with each other, and sometimes about their work. It is also only common sense that when there is no hard evidence of the subjects of years of office conversation, and firm conversation, and there is a significant amount of business to be gained by not remembering that anything relative to a particular former client's representation was discussed, there are strong incentives to claim no actual knowledge."; disqualifying a lawyer who was handling a matter adverse to a former client).

Thus, a lawyer analyzing adversity to a former client must examine the information conveyed, not the duration of the representation.

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Best Answer

The best answer to this hypothetical is MAYBE.

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Meaning of "Substantial Relationship"

Hypothetical 26

Several months ago you began to represent a bank in foreclosing on a hotel in another state. Your bank client had loaned the hotel owner several million dollars five years ago, but he defaulted. Your conflicts check had showed that your firm had previously represented the hotel owner (the matter was called "General Business"), but the matter was closed over 15 years ago. Your firm had not done any work for the owner since then, and the partners who formerly represented the owner could not recall any of the details of their work for him.

You just received a letter from your state bar, reporting that the hotel owner has filed an ethics charge against you. As you hurriedly read the charge, you learn for the first time that 15 years ago your law firm represented the owner in buying the exact hotel upon which you are now helping the bank foreclose. As you do some more checking, you discover that some of the purchase closing documents actually contain your partners' signatures as witnesses. The hotel owner alleges that it is a blatant conflict of interest for you to foreclose on the very same hotel that your partners assisted him in buying.

Does your representation of the bank in the foreclosure matter violate the ethics rules?

(A) YES

(B) NO

(B) NO (PROBABLY)

Analysis

Black letter ABA Model Rule 1.9(a) prohibits lawyers from representing a client adverse to a former client whom the lawyer previously represented in "the same or a substantially related matter." The "substantial relationship" test involves a subtle mixing of two fact-intensive standards.

First, matters are "substantially related" for purposes of this Rule if they involve the same transaction or legal dispute aspects.

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Matters are "substantially related" for purposes of this Rule if they involve the same transaction or legal dispute . . .

ABA Model Rule 1.9 cmt. [3].

The ABA has noted that many courts require matters to be "identical" or

"essentially the same" for them to meet the "substantial relationship" standard. ABA

LEO 415 (9/8/99).

Some courts apply this standard.

• Human Longevity, Inc. v. J. Craig Venter Inst., Inc., No. 18cv1656-WQH-LL, 2018 U.S. Dist. LEXIS 191638, at *6, *7, *7-8, *8, *8, *9, *15-16, *16 (S.D. Cal. Nov. 8, 2018) (declining to disqualify Cooley from representing a plaintiff suing a company in a trade secrets case, even though the firm had represented the same company just four months ago in another trade secrets case; explaining that the matters were not “substantially related”; “Disqualification is unwarranted when an attorney obtained actual knowledge of the former client’s confidential information from the present client, and the present client obtained the information from employment with the former client.”; “Short of showing actual knowledge, if ‘a former client seeks to have a previous attorney disqualified from serving as counsel to a successive client in litigation adverse to the interests of the first client, the governing test requires that the client demonstrate a ‘substantial relationship’ between the subjects of the antecedent and current representations.’”; “The substantial relationship test requires courts to compare the factual and legal issues in each case, and the extent of the attorney’s involvement in each case.”; “Overlapping causes of action or relevant facts between the former and present matters, without more, do not establish a substantial relationship.”; “General information about a former client’s ‘overall structure and practices,’ including the former client’s ‘litigation philosophy’ or ‘key decision makers,’ is relevant to showing a substantial relationship only if that information is ‘directly in issue or of critical importance’ in the present matter.”; “Conclusory statements are insufficient to demonstrate the relevance and materiality of confidential information for purposes of showing a substantial relationship.”; “The evidence fails to establish that Cooley has actual knowledge of confidential information from the Wamberg Matter that is material to this matter. Whether the laptop, allegedly misappropriated by JCVI and Venter, contains such information has no bearing on Cooley’s confidentiality obligations to HLI.”; “Similar causes of action, and similar allegations of former employees obtaining and using HLI’s trade secrets in violation of a PIIA, are not conclusive. The positions of the former HLI employees were different. The types of information each former employee allegedly

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misappropriated are different. The alleged methods of the former employees to obtain and use the information are different. HLI asserts that Cooley obtained confidential information related to HLI’s technology, business, finances, and litigation and settlement strategy in the Wamberg Matter, but HLI fails to identify this information. . . . HLI also fails to show how such information would be ‘directly in issue or of critical importance’ in this matter. . . . To the extent HLI seeks disqualification based on concurrent representation, the evidence fails to demonstrate concurrent representation.” (emphases added)).

• Lennar Mare Island, LLC v. Steadfast Ins. Co., 105 F. Supp. 3d 1100, 1108- 09, 1109 (E.D. Cal. 2015) (disqualifying Hogan Lovells from representing its client adverse to counterclaim defendant CH2M Hill, because Hogan Lovells also represented that company's parent; "Different standards govern the analysis of concurrent and successive conflicts. If the conflict is successive, the court determines whether the representations are substantially related. . . . If the representations are substantially related, an attorney's access to adverse confidential information is presumed and he or she must be disqualified. . . . Whether two representations are substantially related depends on the factual situation, legal questions, and the attorney's involvement in the two cases. . . . Information from the first representation must be material to the second."; "The rule against concurrent conflicts is less forgiving. An attorney will be automatically disqualified from simultaneously representing two clients with adverse interests without both clients' informed, written consent, even if the two matters have nothing in common." (emphases added)).

• Sobel v. Sells (In re Gordon Props., LLC), 505 B.R. 703, 713-14 (Bankr. E.D. Va. 2013) (disqualifying Reed Smith from representing a plaintiff in suing an incorporated homeowners association; noting that Reed Smith had earlier represented the association, but had been terminated by a new board; "This case is substantially related to the prior cases in which Reed Smith represented FOA [condominium] against Gordon Properties and its representation of FOA as general condominium counsel. The facts underlying the representations are substantially the same. While it is true that some of the allegations arose after Reed Smith was terminated by FOA, they are inextricably intertwined with the facts that arose and existed during Reed Smith's prior representation. The parties are essentially the same. At least four of the eleven unit owners who are the present plaintiffs were previously on the Board of Directors when Reed Smith represented FOA. Some of the prayers for relief overlap the relief sought in prior representation. Others would frustrate FOA's attempt to resolve the two underlying disputes."; "Reed Smith changed sides. It was hired to resolve two matters for FOA. FOA -- albeit under new leadership -- resolved them. Reed Smith now seeks on behalf of new clients, several of whom previously sat on the Board and the

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Special Litigation Committee -- to prevent FOA from settling the very matters it was originally hired to resolve. Reed Smith may have a new theory, but it is the same matter. FOA's motion to disqualify Reed Smith will be granted." (emphases added)).

• Koch Indus., Inc. v. Aktiengesellschaft, S.A.R.L., 650 F. Supp. 2d 282, 286, 286-87, 285, 288 (S.D.N.Y. 2009) (declining to disqualify the law firm of Morgan Lewis from handling a matter adverse to Koch although it had conducted a confidential antitrust audit in 2001 for a different Koch affiliate; noting that Morgan Lewis had screened the lawyers handling the case against Koch from those lawyers remaining from the earlier project in which Morgan Lewis represented the Koch subsidiary; noting that the "substantial relationship" standard requires that the matters be "identical" or "essentially the same"; explaining that "[t]he Morgan Lewis audit that plaintiffs cite as the basis for their disqualification motion, however, took place in 2000 and 2001 - - two years after that transaction [which formed the basis of the current litigation Morgan Lewis was handling adverse to Koch]. Further, Morgan Lewis's audit of Koch and certain Koch affiliates did not include KoSa, which was the entity that actually purchased the polyester business that was the locus of the antitrust conspiracy. . . . Instead, the audit report indicates that Morgan Lewis recommended that Koch encourage Kosa to conduct its own antitrust audit and reflects Morgan Lewis's understanding that another law firm would be performing that audit. . . . The audit report is otherwise quite general, providing, for the most part, broad antitrust compliance advice and recommendations. Further, the audit report makes no reference to the DOJ's antitrust investigation, and Morgan Lewis was not otherwise involved in that investigation." (footnote omitted); noting but apparently finding insignificant the fact that "[i]n early 2003, Morgan Lewis sought a conflict waiver to represent a former KoSa customer in one such civil antitrust suit, and Koch's general counsel refused because of Morgan Lewis's prior antitrust compliance work for the company"; "[I]n 2003 Morgan Lewis had sought a conflict waiver to represent a former KoSa customer in a separate antitrust lawsuit related to the 1998 polyester business sale, and Koch's general counsel had refused. (Mem. at 6-7.) The inconsistency between seeking (and being denied) a conflict waiver in 2003 and proceeding with an adverse representation without notifying Koch just five years later is difficult to reconcile. If, indeed, this contradictory behavior was simply the result of a breakdown in Morgan Lewis conflict check procedures, then Morgan Lewis would do well to examine those procedures carefully and immediately, lest future disqualification motions made against it end less favorably.").

• Stokes v. Firestone, 156 B.R. 181, 187 (Bankr. E.D. Va. 1993) (holding that a law firm's brief representation of a couple in buying land did not disqualify the firm from representing the now-former husband in suing the wife for failing to transfer her interest in the land to the former husband as part of a divorce

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agreement; explaining that "I find a substantial relationship lacking, even though there is a superficial resemblance in that both involve [the land]. The land use issues involved in the previous representation and the domestic relations issues involved in the current litigation are simply not related, much less identical").Second, ABA Model Rule 1.7 cmt. [3] describes an information-based standard that is not obvious in black letter ABA Model Rule 1.9(a).

Second, ABA Model Rule 1.7 cmt. [3] describes an information-based standard that is not obvious in black letter ABA Model Rule 1.9(a).

Matters are "substantially related" for purposes of this Rule if . . . if there otherwise is a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client's position in the subsequent matter. For example, a lawyer who has represented a businessperson and learned extensive private financial information about that person may not then represent that person's spouse in seeking a divorce.

Similarly, a lawyer who has previously represented a client in securing environmental permits to build a shopping center would be precluded from representing neighbors seeking to oppose rezoning of the property on the basis of environmental considerations; however, the lawyer would not be precluded, on the grounds of substantial relationship, from defending a tenant of the completed shopping center in resisting eviction for nonpayment of rent. Information that has been disclosed to the public or other parties adverse to the former client ordinarily will not be disqualifying. Information acquired in a prior representation may have been rendered obsolete by the passage of time, a circumstance that may be relevant in determining whether two representations are substantially related.

ABA Model Rule 1.9 cmt. [3] (emphasis added).

This standard does not look at overlapping facts, legal theories, etc. Instead, it assesses whether the lawyer could have obtained information that could now be used against the former client.

Courts have relied on this information-based standard in disqualifying law firms.

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• Linda Chiem, Uber Gets Quinn Emanuel DQ'd From Ex-Rival's Antitrust Suit, Law360, May 2, 2019 ("Quinn Emanuel Urquhart & Sullivan LLP cannot represent a defunct ride-hailing startup in its antitrust suit claiming Uber drove it out of business, a California federal judge said Thursday, finding the firm's previous work for Uber created a conflict of interest."; "Chief U.S. Magistrate Judge Joseph C. Spero granted Uber Technologies Inc.'s motion to disqualify Quinn Emanuel from representing SC Innovations Inc., the successor to Sidecar Technologies Inc., in its antitrust case against Uber. Sidecar alleges that Uber was able to dominate the market and drive Sidecar out of business by subsidizing both its payments to drivers and the fares it charged passengers."; "Judge Spero acknowledged that a 'lawyer can be expected over time to represent zealously and fairly a wide range of clients whose interests might sometimes be at odds with positions that the lawyer has previously taken.' But Quinn Emanuel had access to Uber's confidential information and litigated overlapping competition issues when it previously defended Uber in taxicab companies' suits challenging Uber's regulatory compliance, Judge Spero said."; "'Here, however, it is reasonable for Uber to expect that Quinn Emanuel would not now serve as counsel to a plaintiff bringing antitrust claims based on Uber's alleged conduct during the same time that Quinn Emanuel served as Uber's sole outside litigation counsel and defended Uber against unfair competition and antitrust claims — including at least some claims turning on factual questions underlying the case at hand,' Judge Spero said in Thursday's ruling."; "The Quinn Emanuel legal team working on Sidecar's case insisted they properly put up an 'ethical wall' separating this case from other cases in which the firm has represented Uber. But that still doesn't give Uber any peace of mind that its former go-to outside counsel is now batting for the opposing team in this particular dispute, according to Thursday's ruling." (emphases added)).

• Acad. of Allergy & Asthma in Primary Care v. La. Health Serv. & Indem. Co., 384 F. Supp. 3d 644, 660, 658, 659 (E.D. La. 2018) (disqualifying Baker Donelson from representing the Louisiana Blue Cross Blue Shield entity in an antitrust case brought by the firm’s former client; finding a “substantial relationship”; “It is not necessary for this Court to conjure up a hypothetical scenario where ‘there is a substantial risk that confidential information as would normally or typically have been obtained in [Baker Donelson’s] prior representation of [UAS] would materially advance [Blue Cross’s] position in the present case,’ because it is apparent from the filings already submitted that Baker Donelson is in a position to use information confided from UAS while UAS was its client.” (alterations in original); “These representations share a common subject matter because the issue of whether the reimbursement appeals were decided on merit or in conspiracy among third- party payors is common to both.”; “Movant has shown that the Defendants will be attacking the legitimacy of UAS’s services as a defense to the alleged antitrust conspiracy. The viability of these services was the very thing that

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UAS hired Baker Donelson to defend in front of the Board, Blue Cross, and the Department of Insurance. Thus, UAS has successfully delineated with specificity the subject matters and issues common to the prior and present representations in the manner demanded by the Fifth Circuit.” (emphases added)).

• Lane v. BP p.l.c., Case No. 15-CV-524-TCK-FHM, 2018 U.S. Dist. LEXIS 175179, at *10 (N.D. Okla. Oct. 11, 2018) (disqualifying lawyers representing the plaintiff because one of the firm's lawyers had previously represented a subsidiary of the defendant; “Kinder Morgan need not come forward with evidence of the actual confidential information revealed to Mr. Kearney during his work leading up El Paso's February 3, 2012, letter declining to participate in the remediation of the Wilcox Site. Instead, the Court may conclude that these attorneys have confidential information if Kinder Morgan demonstrates that (1) an actual attorney-client relationship existed; and (2) this case involves a matter that is substantially related to Mr. Kearney's prior representation of El Paso. Matters are 'substantially related' for purposes of the Rule if they involve the same transaction or legal dispute or if there otherwise is a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client's position in the subsequent matter.” (footnote omitted)).

• Liew v. Cohen & Slamowitz, LLP, No. 14-CV-4868 (KAM)(MDG), 2015 U.S. Dist. LEXIS 126876, at *26-27, *28-29, *29, *30 (E.D.N.Y Sept. 22, 2015) (disqualifying a lawyer from representing plaintiffs in a lawsuit against a debt- collecting law firm for which the lawyer was the former managing lawyer; "As previously discussed, whether an attorney formerly represented a client in a matter for the purposes of disqualification primarily turns on the attorney's likely access to confidential information. Mr. Pashkin, in his role as the Managing Attorney of C&S, was in a position to, and did learn confidential information that could be used by his current clients to the detriment of his former employer. Mr. Pashkin not only had access to, but he also actively reviewed and discussed with C&S attorneys and Mr. Leghorn, drafts of the Coble [Coble v. Cohen & Slamowitz, LLP, 824 F. Supp. 2d 568 (S.D.N.Y. 2011)] settlement agreement, which were highly confidential and also subject to attorney-client privilege. He also was privy to confidential and privileged conversations, whether in person, on the telephone or via email, between Mr. Cohen, a named partner of C&S, and Mr. Leghorn, the firm's outside counsel, about how the class size and net worth of C&S would affect their negotiation strategy, the future exposure of C&S and ultimately whether C&S should accept the terms of the settlement agreement. Mr. Pashkin also had access to confidential and privileged information about how the class and subclass lists were determined and structured pursuant to the settlement agreement in Coble. Mr. Pashkin's insistence that his tasks in the Coble matter were rather circumscribed is misplaced, because the operative question is whether he

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likely had access to relevant confidential information."; "Mr. Pashkin likely acquired specific, confidential and privileged information about settlement strategy and the structuring of the class and subclass size in Coble, as well as C&S's internal policies after becoming aware of Midlantic's illegal actions. Additionally, based on the representation in Mr. Pashkin's CV that he made 'recommendations to Senior Management of law firm based on issues exposed by [FDCPA] lawsuits against firm, potential risks related to the practices of its clients, and operational deficiencies,' Mr. Pashkin also obtained general, confidential information about C&S's debt collection practices."; "Mr. Pashkin's access to the draft settlement agreements and subsequent discussion of proposed modifications revealed particular negotiation strategies or goals for C&S in striking a deal that may aid Mr. Pashkin in settlement negotiations in the instant litigation."; "Mr. Pashkin was well aware that C&S feared precisely the type of lawsuit he now brings against C&S. Consequently, the court finds that the risk of trial taint is present here, where Mr. Pashkin might benefit the plaintiffs by using confidential information obtained through his employment at C&S." (emphases added)).

• Bowers v. Ophthalmology Grp., 733 F.3d 647, 652, 653-54 (6th Cir. 2013) ("'In determining whether a substantial relationship exists, the court evaluates the similarities between the factual bases of the two representations. A commonality of legal claims or issues is not required. At a functional level, the inquiry is whether the attorneys were trying to acquire information vitally related to the subject matter of the pending litigation. To accomplish this inquiry, the court must be able to reconstruct the attorney's representation of the former client, to infer what confidential information could have been imparted in that representation, and to decide whether that information has any relevance to the attorney's representation of the current client. What confidential information could have been imparted involves considering what information and facts ought to have been or would typically be disclosed in such a relationship. Consequently, the representations are substantially related if they involve the same client and the matters or transactions in question are relevantly interconnected or reveal the client's pattern of conduct.'" (citation omitted); "Applying this approach, we conclude that M&L's representation of Bowers in her attempt to establish an additional practice in Louisville is substantially related to the present case. In a normal or typical representation of this type, M&L likely would have obtained confidential information regarding Bowers's relationship with her partners at The Ophthalmology Group. When a partner seeks to establish an additional practice separate from her partnership, it seems very likely that the partner would discuss her confidential motivations for doing so with her attorney. For example, in the present case Bowers could have disclosed to M&L that she was not establishing an additional practice because she felt powerless at The Ophthalmology Group but simply because she wanted to make more money.

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This would be detrimental to Bowers's Title VII claim because she alleged that The Ophthalmology Group discriminated against her by not giving her powers that were otherwise accorded to full partners. It seems equally likely that an attorney in this type of representation would want to understand whether there could be backlash from the partnership towards her client for establishing an additional, separate practice. Imagine a scenario that could have happened in the present case in which Bowers communicates to M&L: 'Who cares what my partners think, I am a full partner too, so I can do as I please.' This information would undermine Bowers's Title VII claim, as pleaded, because it would cut against her assertion that she is merely a 'nominal' partner (and therefore can avail herself of Title VII's protections." (emphases added)).

• Sunbeam Prods., Inc. v. Hamilton Beach Brands, Inc., 727 F. Supp. 2d 469, 473 (E.D. Va. 2010) (“Decisional law teaches that a substantial relationship is found when the subject matter of the two representations is 'identical' or 'essentially the same.'. . . But the test encompasses more than situations in which the issues are indistinguishable; 'if the lawyer could have obtained confidential information in the first representation that would have been relevant in the second,'. . . then the matters are considered to be substantially related.”; disqualifying Steptoe & Johnson based on its hiring of an individually disqualified lawyer who had billed time at a previous firm in representing the current adversary on a substantially related matter).

• United States v. Samuels, Crim. No. 3:08CR00005, 2008 U.S. Dist. LEXIS 33570, at *7 (W.D. Va. Apr. 23, 2008) (affirming Magistrate Judge's disqualification of a lawyer based on an earlier representation of a criminal co-defendant; “'Substantially related' has been interpreted to mean 'identical' or 'essentially the same.' Rogers v. Pittston Co., 800 E. Supp. 350, 353 (W.D. Va. 1992) (quoting Tessier v. Plastic Surgery Specialists, Inc., 731 F. Supp. 724, 730 (E.D. Va. 1990)[).] The phrase has also been used to describe a scenario where 'the lawyer could have obtained confidential information in the first representation that would have been relevant in the second.' Tessier, 731 F. Supp. at 730 (quoting Analytica Inc. v. NPD Research, Inc., 708 F. 2d 1263, 1266 (7th Cir. 1983)). However, '[n]o actual receipt of confidences must be shown; such a standard would place an unreasonable burden on the moving party.' Rogers, 800 F. Supp. at 354. Rather, the question is whether 'there was a reasonable chance that the attorney received confidences in the first matter.' Id. Stitz v. Bethlehem Steel Corp., 650 F. Supp. 914, 916 (D. Md. 1987).”).

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Best Answer

In this hypothetical, it would be tempting to conclude that the two matters are

"substantially related" -- because they involve the very same piece of property.

However, the issues are quite different, because the current adversity involves a recent debt -- not the underlying transaction that occurred decades ago.

The best answer to this hypothetical is (B) NO (PROBABLY). N 3/12

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"Playbook" Information

Hypothetical 27

You formerly represented a corporation on several (but not all) of its legal matters. Over the course of that representation, you learned quite a bit about the corporation's preferred approach to settlement discussions and negotiation strategies, corporate executives' willingness or unwillingness to be deposed by an adversary, etc. About six months after your representation of the company ended, you received a call from another company that wants you to handle a breach of contract action against your former client. When your former client learns of this possibility, its president calls you to complain, arguing that you are prohibited from taking the matter because of the "intimate" knowledge you acquired while representing the company.

Is the type of knowledge you acquired while representing the company sufficient to prevent you from taking the breach of contract matter without its consent?

(A) YES

(B) NO

(B) NO (PROBABLY)

Analysis

Courts and bars have analyzed the type of information that prohibits lawyers from taking a matter adverse to a former client from or about whom the lawyer learned the information.

If even general information about a corporate client prohibited later adversity to that client, a lawyer would be forever barred from adversity to the corporation -- contrary to the general societal interest in favor of all clients hiring the lawyers they want. On the other hand, allowing a lawyer with fairly specific material confidential information to take a matter adverse to a former corporate client would violate the bedrock duty of confidentiality.

The ABA Model Rules indicate that

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[i]n the case of an organizational client, general knowledge of the client's policies and practices ordinarily will not preclude a subsequent representation; on the other hand, knowledge of specific facts gained in a prior representation that are relevant to the matter in question ordinarily will preclude such a representation.

ABA Model Rule 1.9 cmt. [3] (emphasis added). Similarly, an ABA legal ethics opinion

indicated that "general knowledge of the strategies, policies, or personnel of the former

employer [for an in-house corporate lawyer] is not sufficient by itself" to disqualify the

lawyer. ABA LEO 415 (9/8/99) (emphasis added).

The Restatement likewise indicates that

[a] lawyer might also have learned a former client's preferred approach to bargaining in settlement discussions or negotiating business points in a transaction, willingness or unwillingness to be deposed by an adversary, and financial ability to withstand extended litigation or contract negotiations. Only when such information will be directly in issue or of unusual value in the subsequent matter will it be independently relevant in assessing a substantial relationship.

Restatement (Third) of Law Governing Lawyers § 132 cmt. d (2000).

A number of commentators use the term "playbook" information -- although it is unclear in some situations whether "playbook" information is the type of useful confidential information that will disqualify a lawyer, or instead whether such information would not be sufficient. It makes more sense to use the term "playbook" in describing disqualifying information -- the type of useful information that a football team would gain by having the adversary's specific "playbook" for a particular game.

As in other contexts, information that has become stale generally will not support a disqualification motion.

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• Niemi v. Girl Scouts, 768 N.W.2d 385, 389, 389-90, 390 (Minn. Ct. App. 2009) (refusing to disqualify a lawyer from representing defendant in an employment discrimination case, although the same law firm had represented the plaintiff twenty-five years earlier in an employment discrimination case against another employer; "The second type of information identified by Niemi, her 'approach to litigation,' presents the weaker of the two arguments. As an initial matter, it is debatable whether this type of information can be described as 'confidential factual information.' Minn. R. Prof. Conduct 1.9 cmt. 3. It is not necessarily 'factual' in nature because it appears to consist primarily of Niemi's personal characteristics and behavioral tendencies or, more accurately, Roby's impressions of Niemi's personal characteristics and behavioral tendencies. See State ex rel. Ogden Newspapers, Inc. v. Wilkes, 211 W. Va. 423, 566 S.E.2d 560, 567 (W. Va. 2002) (stating that attorney's '[v]ague general impressions' about corporate client's 'philosophical outlook' did not warrant attorney's disqualification in subsequent lawsuit against corporation); Restatement (Third) of the Law Governing Lawyers § 132 cmt. d(iii) (2000) (stating that attorney's knowledge of manner in which client approaches litigation is not 'independently relevant' for purposes of substantial relation test, unless information is 'directly in issue or of unusual value in the subsequent matter'). In addition, the information is not necessarily 'confidential' because it may refer to information that is available to persons who are not part of the attorney-client relationship, such as opposing counsel, a court reporter transcribing a deposition, or court personnel, and perhaps even persons who know Niemi through social interactions. See Minn. R. Prof. Conduct 1.9 cmt. 3 ('Information that has been disclosed to the public or to other parties adverse to the former client ordinarily will not be disqualifying.'); see also Restatement (Third) of the Law Governing Lawyers § 132(2) (2000) (stating that rules do not restrict attorney's use of information that has become 'generally known')."; explaining that because "this type of information exists in practically every lawsuit," finding that such information would disqualify a lawyer "effectively prevent[s] an attorney from taking a position adverse to a former client for the remainder of the attorney's career. The drafters of the rules could have imposed a lifetime ban on being adverse to a former client, but the drafters obviously declined to do so."; ultimately concluding that "information consisting of Niemi's 'approach to litigation' does not justify a conclusion that the prior lawsuit and the present lawsuit are 'substantially related matters.' We reach this conclusion without considering whether this type of information retains any relevance or usefulness 25 to 30 years after it is acquired." (emphasis added)).

In any event, courts take differing approaches to the type of information that meets this standard.

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Significantly, some courts applying this standard decline to disqualify lawyers from representing plaintiffs suing companies those lawyers represented in essentially identical types of litigation.

• Stevens v. Wal-Mart Stores, Inc., Case No. 2:17-cv-00970-JCM-PAL, 2018 U.S. Dist. LEXIS 97118, at *4, *26, *30, *30-31, *32, *33 (D. Nev. June 8, 2018) (refusing to disqualify a former Wal-Mart outside lawyer who represented Wal-Mart in many personal injury cases from representing a plaintiff suing Wal-Mart; “Ms. Gutierrez was employed by Wal-Mart's outside counsel, Phillips, Spallas & Angstadt, LLC ('Phillips Spallas') from August 29, 2011, until June 27, 2014. During this time, she defended Wal-Mart in 37 separate cases. The motion asserts that while with the firm Ms. Gutierrez directly communicated with Wal-Mart regarding confidential litigation and discovery plan and case resolution strategies. Wal-Mart communicated its views regarding liability, damages, and settlement to Ms. Gutierrez in confidence. Additionally, Ms. Gutierrez conducted legal research, produced protected work product, and prepared pleadings and motions derived from Wal-Mart's privileged information. Wal-Mart compensated Ms. Gutierrez for her services.”; “It is undisputed that during the 3-year period that Ms. Gutierrez was employed by Phillips Spallas, she represented Wal-Mart in 37 cases. It is also undisputed that the vast majority of her work with the law firm was devoted to representing Wal-Mart.”; “[T]he court finds that Wal-Mart has not met its burden of establishing that this case is substantially related to any case in which Ms. Gutierrez previously represented it. Thus, neither Ms. Gutierrez nor Morris//Anderson are disqualified from representing the plaintiffs in this case.”; “In this case, it is undisputed that while Ms. Gutierrez was employed by Phillips Spallas, virtually all of her work involved representing Wal-Mart. However, the motion to disqualify does not even attempt to provide any factual specifics about the 37 prior cases in which Ms. Gutierrez formerly represented Wal-Mart. The motion to disqualify merely states that her prior representation of Wal-Mart is 'identical' to her current representation of the plaintiffs because all of her prior cases involved personal injury tort claims, the same or similar theories of liability, and the same defenses. This unhelpful generic description of her prior representation of Wal-Mart does not show similarity or superficial resemblance, let alone substantial similarity. As Judge Johnston pointed out in Sanchez, the courts which have applied the Waid factors 'look to the specific facts of the pending and prior cases to determine whether the facts are substantially related and thus whether the scope of the prior representation interferes with the present representation.'“; “Wal-Mart has not presented the court with any evidence of factual similarities between the current case and the former representation. The motion states only that Ms. Gutierrez represented Wal-Mart in personal injury tort claims. All personal injury tort claims are not substantially related to all other personal

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injury tort claims. Ms. Gutierrez's declaration attests she represented Wal- Mart in wrongful death, falling merchandise, and slip-and- fall cases inside and outside the store. This is a slip-and-fall case. Wal-Mart's motion to disqualify does not even indicate how many of the 37 prior cases were slip- and-fall cases or that Ms. Gutierrez represented Wal-Mart in any prior slip- and-fall case with substantially similar facts to the facts involved in this case.”; “The documents submitted for in camera review have not met Wal-Mart's burden. They establish the obvious -- that Ms. Gutierrez, like any lawyer representing a client in litigation received confidential information and engaged in attorney client communications with the client about the cases in which she was representing Wal-Mart. The documents do not establish that any of the confidential communications or privileged communications she received in those cases are substantially related to this case.” (emphasis added)).

• Watkins v. Trans Union, LLC, 869 F.3d 514, 517, 521, 522, 523 (7th Cir. 2017) (declining to disqualify a lawyer from adversity to Trans Union despite his previous representation of Trans Union in cases arguably related to the current case; “Cento defended Trans Union against those claims of FCRA violations for five years. Between 2001 and 2005, he represented Trans Union in over 250 cases and billed over 4,000 hours of work for Trans Union. He worked with Trans Union's in-house counsel and employees, and he was given access to any information necessary for litigation. Today, twelve years after Cento last represented Trans Union, Schuckit and his firm continue to represent Trans Union. Some of the Trans Union employees with whom Cento worked remain with the company.”; “In 2012, and again in 2013, Cento was disqualified from cases in which he represented plaintiffs who brought claims against his former client, Trans Union.”; “[T]he present and prior matters are not part of the same legal dispute. The question turns 'on the facts of a particular situation or transaction,' not whether the matters merely involve the same type of legal issues. Ind. R. Prof'l Conduct 1.9, cmt. 2. Here Cento's prior representations of Trans Union and his present representation of Watkins both involve FCRA violations but do not turn on the same facts of one 'particular situation or transaction.' . . . The facts upon which Watkins' case will turn – recurrent false collection listings on his credit report, despite multiple requests to remove them – are unique to his claim against Trans Union and are not interwoven with any individual case in which Cento represented Trans Union in the past.”; “On Trans Union's other route to show that disqualification is needed, it must show a 'substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client's position in the subsequent matter.' Ind. R. Prof'l Conduct 1.9, cmt. 3. We look first to the nature of the information Cento gained as an attorney for Trans Union.”; “However, having experience is not the same as possessing confidential information.”; “It is also undisputed that general knowledge about Trans Union

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policies and practices to ensure that credit reports are accurate is discoverable if it is relevant to Watkins's alleged FCRA violation. To determine the merits of Watkins' claims, the court or jury will need to make findings of fact about whether the procedures Trans Union used to prepare and to check the accuracy of Watkins' consumer report were reasonable.”; “Further, in cases involving an organizational client like Trans Union, 'general knowledge of the client's policies and practices ordinarily will not preclude a subsequent representation.'“; “[W]hile some information Cento gained was of the experience-building sort, the district court found that Cento also 'undoubtedly did learn some truly confidential information' while working for Trans Union.”; “The district court found here that the passage of time had removed any substantial risk that any confidential information from years ago might advance Watkins's litigation. We do not find a clear error or an abuse of discretion.”; “Because of the passage of time and the lack of any factual overlap between the Watkins's complaint and any prior matter in which Cento defended Trans Union, the district court did not abuse its discretion in applying Rule 1.9 to hold that the Cento's [sic] prior and present representations do not involve the same or substantially related matters.” (emphases added)).

• Khani v. Ford Motor Co., 155 Cal. Rptr. 3d 532, 535, 536 (Cal. Ct. App. 2013) (declining to disqualify a plaintiff's lawyer from handling a lemon law case against Ford; noting that the lawyer had previously represented Ford in such cases; "The substantial relationship test requires comparison not only of the legal issues involved in successive representations, but also of evidence bearing on the materiality of the information the attorney received during the earlier representation."; "The evidence in this case does not establish that any information to which Shahian was exposed during his representation of Ford would be material to his representation of Khani in this case. While Ford presented evidence that Shahian represented it in California lemon law cases, it did not establish that any confidential information about the defense in those cases would be at issue in this case. Neither the allegedly defective 2008 Lincoln Navigator nor its repair history by Galpin Motors was the subject of any lawsuit in which Shahian represented Ford. Takahashi's [corporate counsel to defendant at time plaintiff's lawyer worked there] declaration does not show that Ford had any policies, practices, or procedures generally applicable to the evaluation, settlement or litigation of California lemon law cases at the time Shahian represented Ford, or that any such policies, practices, or procedures continued in existence unchanged between 2007 and 2011. Nor does it show that the same decision makers that were involved in cases Shahian handled for Ford are involved in this case." (emphases added)).

A few courts have applied the "playbook" standard to a former client's idiosyncratic tendencices.

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For instance, in 2007, a Maine court disqualified a lawyer from representing the

husband in a divorce case, because the lawyer had previously represented the wife in a

personal injury action. The court described the type of disqualifying information that the

lawyer had obtained.

An attorney representing a client in a personal injury action involving significant representation would learn confidential information about the way in which his or her client handles the stress of litigation. In the present case, for over two years Spurling observed Nadine's reaction to the numerous tribulations of the litigation process. Spurling personally observed: Nadine 's ability to testify under oath, her reactions to her adversary, her patience with the protracted process, her ability to accept compromise, her ability to handle stress, and the way in which she relates to her attorney. Disclosing knowledge of Nadine's strengths and weaknesses in these areas would be detrimental to her interests in another litigation, particularly in a contentious divorce action.

Hurley v. Hurley, 923 A.2d 908, 909, 912 (Me. 2007) (emphases added).1 In addition to

finding a "substantial relationship" based on this type of information, the court also held

that there was a "second, independent basis "for the lawyer's disqualification -- the

1 Hurley v. Hurley, 923 A.2d 908, 909, 912, 913 (Me. 2007) (disqualifying a lawyer from representing the husband in a divorce case after the lawyer had earlier represented the wife in a personal injury action; "During the course of litigation, which lasted over two years, Nadine [woman] revealed to Spurling [lawyer] details concerning her health, work history, injury history, and a workers' compensation claim."; explaining that the divorce action was "substantially related" to the earlier personal injury action because the lawyer acquired confidential information during the latter that would be relevant in the former; "An attorney representing a client in a personal injury action involving significant representation would learn confidential information about the way in which his or her client handles the stress of litigation. In the present case, for over two years Spurling observed Nadine's reaction to the numerous tribulations of the litigation process. Spurling personally observed: Nadine's ability to testify under oath, her reactions to her adversary, her patience with the protracted process, her ability to accept compromise, her ability to handle stress, and the way in which she relates to her attorney. Disclosing knowledge of Nadine's strengths and weaknesses in these areas would be detrimental to her interests in another litigation, particularly in a contentious divorce action."; also finding under what the court called the "alternative confidential information prong" of the disqualification standard that the lawyer acquired confidential information during a personal injury case that the lawyer could now use against the wife in the divorce case; agreeing with the lower court's determination "that the information Spurling acquired regarding Nadine's physical and mental health, work history, and the way she handles contested litigation was confidential, providing a second, independent basis for Spurling's disqualification.").

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confidential nature of information the lawyer acquired "regarding [the former client's] physical and mental health, work history, and the way she handles contested litigation."

Id. at 913.

Best Answer

The best answer to this hypothetical is (B) NO (PROBABLY).

N 3/12

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Information-Caused Conflicts Not Involving Direct Adversity to Current or Former Clients

Hypothetical 28

You represent two national drugstore chains. This morning you met with the regional manager of one of your clients, who told you that she just arranged for the purchase of real estate in a fast-growing area of Houston. She said that her company planned to rush its development there, and open a new drugstore within six months.

You are now in the middle of a luncheon meeting with your other client's regional manager and some other company executives. You overhear the regional manager saying that his company is looking at investing $50,000 in a study to determine whether that same area of Houston could support a drugstore. The regional manager says that the study would be a waste of money if another chain built a drugstore in that area in the near future -- but that he is not aware of any other company's plans to do that.

What do you do?

(A) Remain silent.

(B) Speak up, and tell the regional manager that it would be a waste of money for his company to undertake the study.

(C) Something else.

(A) REMAIN SILENT

Analysis

Lawyers possessing information from one client can be put in an awkward position if another client would find that information useful.

Outside lawyers nearly always represent more than one client, and therefore must constantly maintain each client's confidentiality -- unless the ethics rules permit or require disclosure. On a daily basis, such lawyers may learn information from one client that another client would love to know. However, the rules nearly always require lawyers to maintain the confidentiality of that information. This might prejudice the client

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who could use the information, but that fact is almost beside the point. If the information

deserves protection under the applicable ethics rules, the lawyer may not disclose that

information to another client -- even if the silence results in that other client's harm or a

forfeited opportunity to benefit.

At the extreme, the lawyer's possession of such information might cause an

insoluble conflict that requires the lawyer's withdrawal.

Under ABA Model Rule 1.7(a)(2), lawyers face a conflict if

there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

ABA Model Rule 1.7(a)(2) (emphasis added). This type of conflict can arise if the

lawyer finds himself or herself incapable of providing neutral advice to a client without

constantly second-guessing whether the lawyer would have given different advice

absent information the lawyer possesses from another client.

A 2005 New York City legal ethics opinion focused on conflicts triggered by

lawyers' acquisition of information from other clients and from non-clients.

The New York City Bar listed a number factors that must guide this determination: (1) the materiality of the information the lawyer has learned during the representation; (2) whether the information is already generally known or would inevitably be discovered by any lawyer representing the other client -- including the

importance of the lawyer possessing the information sooner rather than later;

(3) whether the information learned in the earlier representation can easily be

segregated from the file in the second matter; and (4) whether the lawyer can be

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effectively screened from a colleague who can undertake the later representation of the other client.

In the course of representing clients, lawyers frequently come into possession of information that would be of use to other clients but that they cannot use for the latter clients' benefit. The possession of that information does not, without more, create a conflict of interest under the Code. The critical question is whether the representation of either client would be impaired. In particular, the lawyer has a conflict if the lawyer cannot avoid using the embargoed information in the representation of the second client or the possession of the embargoed information might reasonably affect the lawyer's independent professional judgment in the representation of that client. Whether that is the case will often depend on the materiality of the information to the second representation and the extent to which the information can be effectively segregated from the work on the second representation. Even if the lawyer has a conflict, it may be possible in certain circumstances for the clients to waive the conflict without revealing the information in question. If the lawyer must withdraw, the lawyer should not reveal the embargoed information.

New York City LEO 2005-02 (3/2005) (emphases added).

The legal ethics opinion rejected the concept that a lawyer's acquisition of client information always requires the lawyer's withdrawal from another representation where that information is material.

We are aware that there is language and reasoning in ethics opinions and some court cases that treat the mere possession of information that might be of use to one client, but that is protected as a confidence or secret, as creating a conflict requiring withdrawal. . . . [T]he implications of such an analysis are boundless, because the duty to use information for the benefit of a client is very broad. It makes little sense to disqualify a lawyer because he or she has information that might be useful to the second client, regardless of materiality or significance. A more sensible result, at least where the interests of the clients are not adverse, and one more faithful to the language of the Code,

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(1) recognizes that lawyers regularly have information that they cannot use for the benefit of a client, and (2) focuses on the effect that possession of the information has on the representations in question.

Id. (emphasis added). Thus, the New York City legal ethics opinion takes a more optimistic view than some commentators on whether lawyers may continue representations in such circumstances.

Unfortunately, if a lawyer faces such a conflict, the lawyer often cannot continue the representation of the other client -- because the lawyer may not be able to disclose sufficient information to obtain that client's consent to the continued representation.

In such a situation, lawyers must sometimes withdraw without even explaining why they must withdraw. The New York City ethics opinion discusses that possibility.

[T]he Code does not contemplate an exception to the duty of confidentiality simply because the information may be highly relevant to another client. Rather, as we have said, the duty to use all available information for the benefit of the client is qualified by obligations of confidentiality to others. We conclude that where a lawyer is forced to withdraw from a representation because the lawyer cannot disclose or use material information of another client's, the lawyer is not at liberty to disclose the information. The lawyer should simply state that a conflict has arisen that requires withdrawal for professional reasons. As long as doing so does not effectively disclose the information, the lawyer may state that he or she has acquired information that raises a conflict that requires the lawyer to withdraw. Where identifying the client that 'created' the conflict is not tantamount to disclosing the information, that client may be revealed.

Id. (emphasis added).

Conflicts can arise in an almost unlimited number of situations. For instance, in

2013, Greenberg Taurig attempted (albeit unsuccessfully) to disqualify Epstein Becker from representing a client in a malpractice case against Greenberg -- arguing that

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Epstein Becker improperly gained information it could later use in the malpractice case while acting as co-counsel with Greenberg in representing the client.

Roberts v. Corwin, No. 115370/2009, 2013 NY Slip Op 51637(U), at 2, 3, 6 (N.Y. Sup. Ct. Oct. 3, 2013) (analyzing an alleged information-based conflict; declining to disqualify Epstein Becker, despite Greenberg Traurig's assertion; Epstein Becker acted as co-counsel with Greenberg Traurig in representing plaintiff Roberts, while simultaneously coordinating with Roberts to represent him in a malpractice case against Greenberg Traurig; "Greenberg Traurig contends that Epstein Becker misused its position as co-counsel 'to build a record against [Greenberg Traurig] to support a purported malpractice claim.'. . . In support, Greenberg Traurig cites Mr. Corwin's testimony that he 'disclosed to [Epstein Becker] and Cozier, without reservation of any kind, as I would to any of my own colleagues at [Greenberg Traurig], or to any other qualified lawyer selected by Roberts to be my co-counsel, all information that would be helpful to them in understanding the background of the case and, in particular, all aspects of the underlying arbitration.'" (internal citation omitted); "Significantly, Greenberg Traurig does not allege that Epstein Becker, through its position as co-counsel, gained any information, confidential or privileged, which it could not have obtained from Mr. Roberts himself."; "[A]lthough Mr. Roberts was Greenberg Traurig's client, he was free to disclose to Epstein Becker whatever communications he had with Mr. Corwin or whatever documents he received from Mr. Corwin, including strategy discussions and drafts."; "Epstein Becker's simultaneous representation of Mr. Roberts for purposes of both mitigating damages in the arbitration proceeding and preparing for a possible malpractice action raises ethical concerns. . . . However, this case does not involve the egregious conduct in obtaining confidential information through deceptive means, or an inherent conflict of interest, which has been held to require the severe remedy of disqualification."; "Epstein Becker further claims that a formal written litigation hold was not necessary as Mr. Roberts acted to preserve his documents and the attorneys at Epstein Becker were under an independent ethical obligation to maintain and preserve client files."; "Greenberg Traurig submits no authority that the litigation hold must always be written and that the form of the litigation hold may not vary with circumstances. Moreover, Greenberg Traurig makes no showing that an automatic email deletion protocol was in place at Epstein Becker or, as held above, that Mr. Roberts or Epstein Becker deleted any emails or otherwise destroyed any documents. Under these circumstances, a spoliation sanction is not appropriate.").

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Best Answer

The best answer to this hypothetical is (A) REMAIN SILENT.

b 2/14, 1/15

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Conflicts Caused by Information from Non-Clients

Hypothetical 29

You represent a company that is planning and will build a commuter rail line. During this representation, you have learned incriminating information about a subcontractor that your client recently terminated. You also have seen the still-secret map of the likeliest routes.

(a) May you represent another contractor in an unrelated lawsuit against the subcontractor about whom you learned the incriminating information?

(A) YES

(B) NO

MAYBE

(b) May you represent a developer interested in acquiring parcels of land along the possible rail line routes?

(A) YES

(B) NO

(B) NO (PROBABLY)

Analysis

(a)-(b) Although it seems counterintuitive, lawyers' confidentiality duty can extend to information about non-clients and even about adversaries. The lawyers' inability to disclose or use such information might preclude other representations, even if they are

not adverse to any client's interests.

ABA Model Rules

Although it is not an easy fit, these lawyers' ethical dilemmas arise under the

lesser-known type of ABA Model Rule 1.7 conflict of interest.

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Every lawyer is familiar with the chief type of conflict of interest -- which exists if

"the representation of one client will be directly adverse to another client." ABA Model

Rule 1.7(a)(1). At the extreme, this type of direct conflict involves a representation that the ABA Model Rules flatly prohibit. Lawyers can never undertake a representation that involves "the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal." ABA Model Rule

1.7(b)(3). Even if a representation does not violate that flat prohibition, adversity might nevertheless create a conflict of interest if a lawyer represents one client "directly adverse" to another client. For instance, a lawyer jointly representing two co- defendants in a lawsuit obviously cannot "point the finger" at one of the clients (without consent), even if such an argument does not amount to "the assertion of a claim."

Some folks describe this first variety of conflict as a "light switch" conflict, because a representation either meets this standard or it does not. This is not to say that it can be easy to analyze such conflicts. But a lawyer concluding that a representation will be "directly adverse to another client" must address the conflict.

The other type of conflict involves a much more subtle analysis. As the ABA

Model Rules explain it, this type of conflict exists if

there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

ABA Model Rule 1.7(a)(2) (emphasis added).

This has been called a "rheostat" conflict. Unlike making a "yes" or "no" determination as required in analyzing the first type of conflict, a lawyer dealing with a

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"rheostat" conflict has a more difficult task. The lawyer must determine if some other duty, loyalty, or interest creates a "significant risk" of "materially" limiting the lawyer's representation of a client. This often involves a matter of degree rather than kind. For example, a lawyer with mixed feelings about abortion might feel awkward representing an abortion clinic, but would be able to adequately represent such a client. However, a vehemently pro-life lawyer might well find her representation of such a client "materially limited" by her personal beliefs. Thus, this second type of conflict requires a far more subtle analysis than a "light switch" type of conflict arising from direct adversity to another client.

As with the first of type of conflict, a lawyer dealing with a "rheostat" conflict may represent a client only if: (1) the lawyer "reasonably believes" that she can "provide competent and diligent representation," (2) the representation does not violate the law, and (3) each client provide "informed consent." ABA Model Rule 1.7(b)(1), (4).

Although the ABA Model Rules do not deal with it, this type of "rheostat" conflict can arise if the lawyer obtains information about a non-client during the lawyer's representation of a client. Of course, even that information (about a non-client) can be within the definition of the client's protected "information."

And from a conflicts standpoint, lawyers might find themselves confronting a

"rheostat" conflict even if they will not be adverse to a current or former client. Under

ABA Model Rule 1.7(a)(2), such lawyers might find that there is a "significant risk" that their representation of a client will be "materially limited" by their responsibilities to

"another client, a former client or a third person." This might occur if their disclosure or use of the information about a non-client might violate their client's contractual duties to

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such a non-client. For instance, a lawyer representing a bank might put the bank at risk by disclosing or using information about one of the bank's clients, which the lawyer obtained while representing the bank.

Unfortunately, the ABA Model Rules do not really address this subtle but potentially disabling type of conflict.

Restatement

The Restatement deals more extensively with this issue. As the Restatement explains, the lawyer's disclosure or use of clients' information can put the client in jeopardy.

A lawyer might have obligations to persons who were not the lawyer's clients but about whom information was revealed to the lawyer under circumstances obligating the lawyer not to use or disclose the information. Those obligations arise under other law, particularly under the law of agency. For example, a lawyer might incur obligations of confidentiality as the subagent of a principal whom the lawyer's client serves as an agent,

Restatement (Third) of Law Governing Lawyers § 132 cmt. g(ii) (2000) (emphasis added). The Restatement provides several illustrations that illuminate the issue.

In the first illustration, a lawyer representing a hospital has learned that a patient in the hospital has been convicted of a drug offense. That patient is now a witness in an unrelated case in which the lawyer is representing another client. Somewhat surprisingly, the Restatement suggests that the lawyer may continue to represent the client in that other case if the client consents after the lawyer discloses the nature of the conflict and its effect on limiting the lawyer's cross-examination of the patient.

Lawyer has represented Hospital in several medical- malpractice cases. In the course of preparing to defend one

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such case, Lawyer reviewed the confidential medical file of Patient who was not a party in the action. From the file, Lawyer learned that Patient had been convicted of a narcotics offense in another jurisdiction. Patient is now a material witness for the defense in an unrelated case that Lawyer has filed on behalf of Plaintiff. Adequate representation of Plaintiff would require Lawyer to cross- examine Patient about the narcotics conviction in an effort to undermine Patient's credibility. Lawyer may not reveal information about Patient that Hospital has an obligation to keep confidential. That limitation in turn may preclude effective representation of Plaintiff in the pending case. However if, without violating the obligation to Patient, Lawyer can adequately reveal to Plaintiff the nature of the conflict of interest and the likely effect of restricted cross-examination, Lawyer may represent Plaintiff with Plaintiff's informed consent.

Restatement (Third) of Law Governing Lawyers § 132 cmt. g(ii), illus. 7 (2000)

(emphases added). This seems like an unrealistic remedy. How could such a lawyer adequately disclose the dilemma to the current client without disclosing protected information, or providing such obvious hints that the current client can easily surmise the protected information? In fact, the lawyer's effort to explain the conflict to the current client might make the protected information sound even more important than it really is.

The other illustration involves a lawyer's acquisition of confidential information about a company while representing an underwriter assisting the company in selling its bonds. The Restatement concludes that the lawyer cannot represent another client in a breach of contract action against the company, unless the information has become generally know.

Lawyer represents Underwriter in preparing to sell an issue of Company's bonds; Lawyer does not represent Company. Several questions concerning facts have arisen in drafting

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disclosure documents pertaining to the issue. Under applicable law, Underwriter must be satisfied that the facts are not material. Lawyer obtains confidential information from Company in the course of preparing Lawyer's opinion for Underwriter. Among the information learned is that Company might be liable to A for breach of contract. Unless the information has become generally known . . . , Lawyer may not represent A in a breach of contract action against Company because the information was learned from Company in confidence.

Restatement (Third) of Law Governing Lawyers § 132 cmt. g(ii), illus. 8 (2000)

(emphases added). This conclusion makes more sense than the Restatement's conclusion about the other scenario.

Although the ABA Model Rules presumably would impute an individual lawyer's disqualification under this standard to the lawyer's entire firm, the Restatement looks to agency law in finding such imputation inappropriate.

An important difference between general agency law and the law governing lawyers is that general agency law does not normally impute a restriction to other persons. Thus, when a lawyer's relationship to a nonclient is not that of lawyer-client but that, for example, of subagent-principal, imputation might not be required under the law governing subagents.

Restatement (Third) of Law Governing Lawyers § 132 cmt. g(ii) (2000) (emphasis added). In describing this situation, the Restatement indicates that perhaps another lawyer at the firm could represent the client suing the company.

In the circumstances described in Illustration 8, standards of agency law or other law might permit the underwriter to provide services to another customer in a subsequent transaction so long as the underwriter takes appropriate steps to screen its employees. A lawyer affiliated with the disqualified lawyer could represent the underwriter in the second transaction after appropriate screening of the disqualified lawyer.

Id.

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New York City Legal Ethics Opinion

A 2005 New York City legal ethics opinion analyzed conflicts triggered by lawyers' acquisition of information about non-clients.

The New York City Bar listed a number factors that must guide this determination: (1) the materiality of the information the lawyer has learned during the representation; (2) whether the information is already generally known or would inevitably be discovered by any lawyer representing the other client -- including the importance of the lawyer possessing the information sooner rather than later; and

(3) whether the information learned in the earlier representation can easily be segregated from the file in the second matter; (4) whether the lawyer can be effectively screened from a colleague who can undertake the later representation of the other client.

In addition to focusing on information lawyers obtain from clients about other clients, the legal ethics opinion also addressed the implications of information lawyers obtain from clients about non-clients.

The first of the New York City legal ethics opinion's scenarios paralleled the

Restatement illustration 8. The legal ethics opinion held out a slight hope that the lawyer could represent the other client in a transactional matter adverse to the company about which the lawyer acquired information about representing the underwriter.

New York City LEO 2005-02 (3/2005) (analyzing, among other things, the following situation: "Scenario 1: A lawyer represents the underwriters in a securities issuance and in the course of due diligence learns confidential information about the issuer. The lawyer owes a duty to the lawyer's clients, the underwriters, arising out of the underwriters' duties to the issuer, to keep the information learned about the issuer in due diligence confidential. After the securities issuance is completed, a long-time client requests the lawyer's

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assistance in seeking to acquire or enter into a transaction with the issuer. May the lawyer undertake the representation of the acquirer?" (emphasis added); addressing the conflict implications: "In the first [scenario], the lawyer represented the underwriters in the first representation and is adverse to the issuer in the second. The lawyer is not adverse to his former clients, because at the time of the second representation, the underwriters (unless they are involved in the second matter as well) are indifferent to whether the acquirer or counterparty succeeds or not. But the lawyer has confidential information about the issuer that may be used against the issuer in representing the acquirer or counterparty. For example, the lawyer may have reviewed and kept copies of projections of financial results that would be useful to an acquirer or counterparty in deciding what price to bid or offer. Or the lawyer may have learned very damaging information -- such as the prospect of indictment -- that caused the earlier securities issuance not to go forward. While the acquirer or counterparty might eventually learn that information in the course of due diligence in the second transaction, having it earlier in the sales process might be useful. That information cannot, however, be disclosed because of the underwriters' demand (derived from undertakings to the issuer and from the securities laws) that their lawyer not disclose due diligence information not otherwise disclosed in the prospectus." (footnote omitted) (emphasis added); also analyzing the materiality of the information; "Under either test, whether the possession of the information will create a conflict will depend on the totality of the circumstances. A critical factor is the materiality of the information to the second representation. The more material the information, the more likely that a lawyer cannot avoid using it or, at least, that the lawyer's professional judgment on behalf of the client may be affected by knowledge of it. One element of materiality is whether the information in question would be uncovered in the ordinary course of the other matter. If so, then the information would be material only if it was important to have the information earlier than it would have been obtained in the ordinary course. In Scenario[] 1 . . ., it may be that the information possessed by the lawyer from the prior due diligence and from the insurance company representation would inevitably be sought in conducting due diligence for the first transaction (either because there are standard questions that would uncover the information or because publicly available information about the target would signal the need to make such inquiry). In that case, unless when the information is known is important, the possession of the information would not likely affect the representation." (footnote omitted) (emphases added); "The existence of financial projections in due diligence files that were not focused on in the earlier matter and are not recalled is unlikely to have any effect on the lawyer's judgment as long as the lawyer does not look at the files and the files are effectively sealed." (footnote omitted)).

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The second scenario involved a lawyer representing an insurer in analyzing one of its insured's claims for legal fees incurred during a regulatory investigation. Another client then asks the lawyer to represent it in forming a joint venture with the insured.

Although acknowledging that the insurance company "may be indifferent to whether the business is transferred to the joint venture," the lawyer might not be able to obtain the necessary consent from the insurer client to represent the other client in forming the joint venture -- because that client's business plans might be confidential.

• New York City LEO 2005-02 (3/2005) (analyzing, among other things, the following situation: "Scenario 2: A law firm represents an insurer in determining whether a claim by Company A for legal fees incurred in connection with an ongoing regulatory investigation is covered by Company A's 'directors and officers' insurance policy. In that connection Company A supplies information about the investigation to the insurer's law firm under an understanding that the lawyers and the insurer will keep the information confidential. The law firm is then approached by regular Client B for assistance in forming a potential joint venture with Company A to which Company A will contribute the business being investigated by the regulators. May the law firm undertake the representation of Client B?"; analyzing the ethics implications of the lawyer's information; "[I]n the second scenario, the insurance company may acquire relatively detailed information about the insured that might be useful to the acquirer (e.g., the significance of the investigation, the insurance company's position on coverage). The insurance company may be indifferent to whether the business is transferred to the joint venture."; also analyzing the materiality element "Under either test, whether the possession of the information will create a conflict will depend on the totality of the circumstances. A critical factor is the materiality of the information to the second representation. The more material the information, the more likely that a lawyer cannot avoid using it or, at least, that the lawyer's professional judgment on behalf of the client may be affected by knowledge of it. One element of materiality is whether the information in question would be uncovered in the ordinary course of the other matter. If so, then the information would be material only if it was important to have the information earlier than it would have been obtained in the ordinary course. In Scenario[] . . . 2, it may be that the information possessed by the lawyer from the prior due diligence and from the insurance company representation would inevitably be sought in conducting due diligence for the first transaction (either because there are standard questions that would uncover the information or because publicly available information about the target would signal the need

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to make such inquiry). In that case, unless when the information is known is important, the possession of the information would not likely affect the representation." (footnote omitted); "[T]he ability to obtain consent may be hampered by the inability to disclose the information in question. In Scenario 2, for example, if the fact that the joint venture is being considered is itself confidential, the lawyer could not approach the insurance company for permission to use the information derived from the earlier representation." (emphasis added)).

The third scenario involved a materially different situation, in which the lawyer's knowledge would not be used against a non-client about which the lawyer has acquired information while representing a client. In that scenario, a lawyer representing a state agency learns about the possible route of a new rail line. The New York City legal ethics opinion concluded that this lawyer was probably unable to undertake the representation of another client interested in purchasing land in the "general direction of the rail line."

• New York City LEO 2005-02 (3/2005) (analyzing, among other things, the following situation: "Scenario 3: A lawyer represents a state transportation agency in connection with planning a new rail line. To avoid land speculation, the agency insists that its deliberations about the route of the rail line be kept confidential. Another client asks the lawyer to assist it in acquiring one of several parcels of land in the general direction of the rail line. May the lawyer undertake the representation of the land purchaser?"; "In the third scenario, the lawyer is likely to know in advance of the general public the precise route of the rail line, information that would be very valuable if known to the land purchaser." (emphasis added); discussing the conflicts implications of a lawyer's possession of information in simultaneous representations; "Scenario 3 illustrates this problem. If the lawyer learns the precise routing of the rail route in advance of the public but at a time when it would be useful to the prospective land purchasing client, the lawyer could not pretend not to know that information in advising the client on which parcel to buy." (emphasis added); also analyzing the materiality element; "Under either test, whether the possession of the information will create a conflict will depend on the totality of the circumstances. A critical factor is the materiality of the information to the second representation. The more material the information, the more likely that a lawyer cannot avoid using it or, at least, that the lawyer's professional judgment on behalf of the client may be affected by knowledge of it. One element of materiality is whether the information in question would be

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uncovered in the ordinary course of the other matter. If so, then the information would be material only if it was important to have the information earlier than it would have been obtained in the ordinary course. . . . In Scenario 3 . . . , the value of the information about the rail routing is in its early possession, so the fact that the routing will eventually be public would not mitigate the conflict presented." (footnote omitted) (emphasis added); "A second factor is the ease with which the information can be segregated from the work on the second matter to ensure that the information is not used. Here a significant consideration is the specificity of the information and whether it is of a kind that the lawyer will likely recall. The rail routing in Scenario 3 . . . [is an] example[] of information that, once learned, cannot be pushed from the mind." (emphases added)).

This New York City legal ethics opinion presents one of the only analyses of this subtle issue. Its approach seems well ground in basic conflicts rules, which probably do not vary much from state to state.

Case Law

In 2011, a Florida court dealt with this issue -- disqualifying a lawyer from representing a bank in an action against a borrower, because the lawyer was simultaneously representing the borrower's lawyer in a malpractice claim brought by the borrower.

• Frye v. Ironstone Bank, 69 So.3d 1046, 1050, 1052 (Fla. Dist. Ct. App. 2011) (disqualifying a lawyer from representing a bank in a lawsuit against a borrower who sought to enforce a loan guarantee, because the lawyer was simultaneously defending in a malpractice action the lawyer who had originally represented the borrower in defending against a bank's action; explaining that the lawyer simultaneously represented the bank and the malpractice defendant would learn confidences about the borrower from his malpractice defendant lawyer client that he could use on behalf of his bank client in the loan guarantee action; "Mr. Frye's argument for disqualification is based upon Henderson Franklin's receipt in the context of the Bank's action against Mr. Frye of privileged information from Mr. Frye's former counsel as a result of Henderson Franklin's simultaneous representation of the Bank and of Mr. Trupp and the Arnstein firm. The legal malpractice action concerns, in part, Mr. Trupp's representation of Mr. Frye in the same action in which Henderson Franklin is currently representing the Bank. The allegations of the malpractice complaint also concern Mr. Trupp's representation of Mr. Frye on

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estate and asset planning matters, during which Mr. Frye alleges that Mr. Trupp gained detailed knowledge of his financial circumstances. Such knowledge could be invaluable to the Bank in collecting a judgment against Mr. Frye."; "[B]ecause Mr. Frye has sued Mr. Trupp in connection with that representation, Mr. Trupp may lawfully reveal those privileged communications to the extent necessary for the defense of the malpractice action."; "In accordance with the applicable ethical rules, Mr. Frye's privileged attorney-client communications with Mr. Trupp may now be disclosed to his opponent's counsel in the Bank's action on the guaranty, Henderson Franklin. It follows that Henderson Franklin must be disqualified from representing the Bank in its action against Mr. Frye because of the unfair informational advantage Henderson Franklin has gained by virtue of its representation of Mr. Trupp and the Arnstein firm in the defense of Mr. Frye's malpractice action.").

Best Answer

The best answer to (a) is MAYBE; the best answer to (b) is (B) NO

(PROBABLY).

B 2/14, 12/14

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Ability to Withdraw from a Representation At Any Time If There is No Prejudice

Hypothetical 30

One of your partners has been handling small employment discrimination cases for an out-of-state company with a factory in your town. Cases are slowly moving forward, but there are no depositions or trial dates on the immediate schedule. You just read a press release from that company indicating that it would begin manufacturing and selling outboard motors -- starting about three years from now. One of your firm's largest clients manufactures outboard motors, and you want to "clear the decks" now to avoid any possible conflict once the two companies begin to compete with one another.

Would it be ethical for you to withdraw now from the small employment discrimination cases your firm is handling?

(A) YES

(B) NO

(A) YES (PROBABLY)

Analysis

State bar rules generally allow a lawyer to withdraw from a representation at any time, as long as the withdrawal does not prejudice the client. ABA Model Rule

1.16(b)(1) ("a lawyer may withdraw from representing a client if . . . withdrawal can be accomplished without material adverse effect on the interests of the client"). If the representation involves a tribunal, the withdrawing lawyer obviously must seek the tribunal's permission. ABA Model Rule 1.16(c).

The Restatement seems to acknowledge permissibility of such a "clearing the decks" withdrawal.

Withdrawal is effective to render a representation "former" for the purposes of this Section if it occurs at a point that the client and lawyer had contemplated as the end of the representation. . . . The representation will also be at an

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end for purposes of this Section if the existing client discharges the lawyer (other than for cause arising from the improper representation) or if other grounds for mandatory or permissive withdrawal by the lawyer exist . . . , and the lawyer is not motivated primarily by a desire to represent the new client.

Restatement (Third) of Law Governing Lawyers § 132 cmt. c (2000).

In this hypothetical, you are not withdrawing from the representation to take a specific matter adverse to your current client -- so you should not be affected by the "hot potato" rule prohibiting dropping a client in order to take a particular matter against it.

Assuming that your withdrawal would not prejudice your client, the ethics rules would probably permit the withdrawal.

Best Answer

The best answer to this hypothetical is (A) YES (PROBABLY).

N 3/12

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Ability to Withdraw if the Client Does Not Pay Invoices

Hypothetical 31

You are about three weeks away from a large trial, but your client just told you that it cannot afford to pay your last bill and will not be able to pay any future bills. Your law firm's management wants you to withdraw from the representation.

May you withdraw from representing a client who has not paid its bills?

(A) YES

(B) NO

(A) YES (PROBABLY)

Analysis

Under every state's ethics' rules, lawyers may withdraw from the representation if their client does not pay its bills -- even if the withdrawal would have a "material adverse effect" on the client.

Under ABA Model Rule 1.16(b), a lawyer may withdraw (even if the withdrawal cannot be "accomplished without material adverse effect on the interests of the client") if

[t]he client fails substantially to fulfill an obligation to the lawyer regarding the lawyer's services and has been given a reasonable warning that the lawyer will withdraw unless the obligation is fulfilled.

ABA Model Rule 1.16(b)(1),(5). The lawyer can also withdraw (despite harming the client) if

the representation will result in an unreasonable financial burden on the lawyer or has been rendered unreasonably difficult by the client.

ABA Model Rule 1.16(b)(6).

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Of course, the Rules also require the court's permission to withdraw if the lawyer

has appeared as counsel of record for the client in a case. ABA Model Rule 1.16 (c).

In states following the ABA Model Rules approach, the lawyer would also have to

give "reasonably warning" that the lawyer will withdraw unless the client pays the bills.

Not all states require such a warning.

Lawyers frequently decide not to withdraw on the eve of a trial, corporate closing, etc. even if they are not being paid -- justifiably worried that the former client might file a malpractice case against the lawyer and claim that the law firm's withdrawal harmed the client in some way.

Still, some law firms choose to withdraw in such settings, and courts often allow them to withdraw.

• Sanford v. Maid-Rite Corp., 816 F.3d 546, 548, 550 (8th Cir. 2016) (reversing the trial court's refusal to let a law firm withdraw from representing defendant, on the basis that the defendant was not paying the law firm; "Larkin, Hoffman, Daly & Lindgren, Ltd. (Larkin) was retained to represent Maid-Rite Corporation (Maid-Rite), Bradley L. Burt, and Tania Burt in this franchise dispute. Larkin moved to withdraw as counsel after the franchisor failed to pay for its legal fees and to provide important information related to its defense. The district court denied Larkin's motion and the firm appeals. We reverse."; "Larkin met the requirements of both the Minnesota Rules of Professional Conduct and the Local Rules before seeking withdrawal. Defendants' refusal to pay was 'undoubtedly a substantial failure to fulfill an obligation to the lawyer' and 'supplied good cause for withdrawal.' See Brandon, 560 F.3d at 538 [Brandon v. Blech, 560 F.3d 536 (6th Cir. 2009)] (internal quotation marks omitted). Defendants' failure to provide the firm with important information related to their defense also failed to fulfill an obligation to the firm. Moreover, the firm had warned defendants several times that if their outstanding bills were not paid, it would be required to withdraw. Finally, the record is clear that defendants were notified of the motion to withdraw. We conclude on this record that it was presumptively appropriate for Larkin to seek withdrawal."; "The presumption favoring withdrawal in similar circumstances should be disregarded, however, if it would severely prejudice the client or third parties. . . . Larkin did not engage in such conduct and provided defendants with notice at least four weeks prior to filing its motion to

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withdraw."; "Furthermore, the record does not show severe prejudice to any third parties from the firm's withdrawal. Neither party has identified any prejudice to third parties, and the plaintiffs did not oppose Larkin's motion before the district court nor its current appeal." (emphasis added)).

• Robbins v. Legacy Health Sys., Inc., 311 P.3d 96, 103 (Wash. Ct. App. 2013) ("Simply put, after their initial investment, the Robbinses did not pay the costs as required by their fee agreements. It is clear that further representation would result in an unreasonable financial burden on Schultz and that with their dispute over fees and the resulting professional conflict, the Robbinses rendered Schultz's representation unreasonably difficult. . . . Here, as in Kingdom [Kingdom v. Jackson, 896 P. 2d 101 (Wash. Ct. App. 1995)], counsel gave her clients ample notice of her intent to withdraw and ample time to find a new attorney. And here, unlike Kingdom, the clients were no longer satisfied with their attorney. This is not one of those rare cases where Schultz's withdrawal would have harmed the efficiency of the judicial system, and we do not see that her withdrawal would have had a materially adverse effect on the Robbinses' interests. Trial had not been set and there were no dispositive motions before the court when Schultz moved to withdraw."; "The trial court abused its discretion by failing to consider all relevant factors in evaluating Schultz's motion to withdraw as counsel for the Robbinses." (emphases added)).

• Brandon v. Blech, 560 F.3d 536, 538 (6th Cir. 2009) (reversing the trial court's refusal to allow Proskauer Rose LLP to withdraw from representing a client who had not paid his bills; "There are, of course, several occasions when a district court ought to prohibit counsel from withdrawing. For example, attorneys may forfeit the right to withdraw when they engage in strategically- timed or coercive behavior, like waiting until a client is 'over a barrel' before demanding payment. . . . To avoid such tactics, Model Rule 1.16(b)(5) requires counsel to give 'reasonable warning.' But Proskauer gave reasonable notice -- over three weeks -- and did not coerce in any regard; the case remained inactive, with no impending deadlines."; "Likewise, a district court may forbid withdrawal if it would work severe prejudice on the client or third parties. . . . But neither party identified any prejudice -- no one opposed Proskauer's motion, either before the district court or on appeal. And while the district court correctly noted that withdrawal would leave Blech without counsel, this does not amount to severe prejudice. The case remained inactive, with no imminent deadlines and ample time for Blech to retain new counsel.").

Not surprisingly, lawyers seeking to withdraw as counsel of record must protect as much as possible their clients' confidential information.

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In 2016, the ABA issued a legal ethics opinion that articulated this universally recognized principle.

• ABA LEO 476 (12/19/2016) (Lawyers seeking to withdraw as counsel of" record because they are not being paid must "err on the side of non- disclosure" of their grounds for seeking withdrawal. Courts "have differed widely" as to information they require before considering such a withdrawal motion, and should work with lawyers to minimize the required disclosure. Lawyers "could": (1) seek withdrawal without disclosing any client confidences; (2) if unsuccessfully, respond to courts' insistence for some additional information by requesting an in camera or under seal process; and (3) publicly disclose client confidences only if the court orders such disclosure.).

Best Answer

The best answer to this hypothetical is (A) YES (PROBABLY).

N 3/12

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The "Hot Potato" Rule

Hypothetical 32

You just received a call from the president of your firm's largest client. She asks that you file a lawsuit on your client's behalf against a small company from which your client buys equipment. Your conflicts check reveals that one of your lawyers is currently representing the equipment supplier in a very small unrelated real estate matter. You are familiar with the general ethics rules, and you ask your firm's "ethics guru" whether the rules allow you to take the new matter if you withdraw from representing the equipment supplier so it will be considered a "former" client under the conflicts analysis.

May you represent your firm's largest client if you withdraw from your representation of the adversary in the unrelated matter?

(A) YES

(B) NO

(B) NO (PROBABLY)

Analysis

Given the enormous difference between the conflicts rule governing adversity to

current clients (which prohibits adversity on any matter, absent consent) and adversity

to former clients (which is an information-based rule, and often permits such adversity

without consent), lawyers often face the temptation to turn a "current" client into a

"former" client so they can apply the more lenient rule.

However, most bars and courts apply what is called the "hot potato" rule, which

prohibits withdrawal from a representation if the withdrawal is motivated by the desire to

immediately take a matter adverse to that client. The term "hot potato" apparently

comes from a 1987 Northern District of Ohio case. Picker Int'l, Inc. v. Varian Assocs.,

Inc., 670 F. Supp. 1363, 1365 (N.D. Ohio 1987) ("A firm may not drop a client like a hot

potato, especially if it is in order to keep happy a far more lucrative client.").

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Interestingly, the ABA Model Rules do not address this issue. In fact, it would

seem that the ethics rules might permit such a withdrawal. Under ABA Model Rule

1.16(b)(1), a lawyer may withdraw from representation of a client if there is no "material

adverse effect" on the client. That rule presumably examines the effect to the client in

the matter from which the lawyer withdraws -- not some other matter. If that is true,

then the lawyer's later adversity to the client in an unrelated matter would not appear to

violate that rule.

Still, such a withdrawal normally receives strong condemnation. As the

Restatement (Third) of Law Governing Lawyers § 132 cmt. c (2000) explains "[a]

premature withdrawal violates the lawyer's obligation of loyalty to the existing client,"

and is effective only if the lawyer "is not motivated primarily by a desire to represent the

new client."1

One older legal ethics opinion took a different approach.

• District of Columbia LEO 272 (5/21/97) (holding that the D.C. ethics rules permit a lawyer to withdraw from representing a client to avoid a conflict; explaining the factual background; "A law firm has requested our opinion concerning its ability to represent two clients of the firm who are adverse in an administrative proceeding. The firm has represented Client A for a considerable period of time with respect to matters that are regulated by that agency. The firm successfully represented Client A in a completed, non- adversarial matter before the agency and thereafter continued to provide

1 Restatement (Third) of Law Governing Lawyers § 121 cmt. c(iii), illus. 5 (2000) ("For many years Law Firm has represented Bank in mortgage foreclosures and does so currently. Other lawyers in Law Firm have continuously represented Manufacturer as outside general counsel and do so currently. Bank and Manufacturer entered into an agreement under which Bank would loan a sum of money to Manufacturer. Lawyers from Law Firm did not represent either client in negotiating the loan agreement. A dispute arose between the parties to the agreement, and Manufacturer announced that it would file suit against Bank for breach of the loan contract. Absent client consent as provided in § 122, Law Firm lawyers may not represent either Bank or Manufacturer in the litigation . . . . Law Firm may not withdraw from representing either client in order to file or defend a suit on the loan agreement against the other . . . . Law Firm may, however, continue to provide legal services to both clients in matters unrelated to the litigation because as to those matters the clients' interests are not in conflict.").

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advice regarding matters regulated by that agency. The firm also represents Client B in unrelated contract matters, but has not done any work for Client B in some months. Client B[,] represented by separate counsel, has initiated an adversarial action against Client A before that administrative agency. Client B refuses to consent to the law firm's representation of Client A in the administrative matter."; "The question posed is whether and under what conditions the law firm, consistent with the D.C. Rules of Professional Conduct, may represent Client A in the administrative proceeding initiated by Client B. The Committee concludes that the law firm may represent Client A in that proceeding if the firm is ethically permitted to withdraw from the separate, unrelated representation of Client B. We find that in the circumstances presented by this inquiry withdrawal is permitted under Rule 1.16."; "If B is a current client, the question then arises whether the lawyer may withdraw from representing Client B and invoke the more lenient conflict of interest provisions of Rule 1.9 to determine his obligations to his former client. Rule 1.16(b) provides, in relevant part, that a lawyer may withdraw from representing a client only if withdrawal can be accomplished without 'material adverse effect' on the interests of the client."; "Under the facts presented here, we conclude that the firm may withdraw under Rule 1.16(b) because it appears that withdrawal as counsel from Client B can be accomplished without 'material adverse effect' on Client B. All projects for Client B have apparently been completed; no work had been done on the related contract matters for several months; no outstanding projects appear to be contemplated imminently; and Client B was able to obtain different counsel, as reflected by the fact that B retained other counsel to represent it in connection with the administrative proceeding."; "In sum, we believe that the law firm should be able, under the circumstances presented, (i) to withdraw as counsel to Client B, rendering it a former client; and (ii) to continue thereafter, consistent with Rule 1.9, to represent A in the administrative proceeding, taking positions adverse to former Client B provided that the matter is not substantially related to the work that the law firm did for Client B."; "In reaching our conclusion, we are mindful of a line of judicial authority and opinions of Bar committees in other jurisdictions that severely limit a lawyer's ability to terminate a client once a potential conflict arises in order to be able to take positions adverse to the erstwhile client."; "We believe this line of authority does not govern the instant inquiry, for several reasons. In the first place, none of these cases was decided by a District of Columbia court; none was interpreting the D.C. Rules; and none of the cases arose in the District of Columbia. We are not aware of a District of Columbia court decision that addresses the issue. Second, and more important, we believe that the cases and bar opinions from the other jurisdictions are distinguishable on the facts presented by this inquiry, as well as by differences in the applicable rules. We believe that the facts presented here make clear that the broadest statement of the so-called 'hot potato rule' is too categorical to apply in all circumstances and is inconsistent with the

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optional withdrawal provisions of the D.C. Rules. . . . [N]one of the jurisdictions had a 'thrust-upon' conflicts rule like D.C.'s Rule 1.7(d), which allows an attorney to remain in a matter after an unforeseeable conflict has arisen. In all of these respects, these cases from other jurisdictions are distinguishable."; "We believe that the approach taken by the Alabama Supreme Court in AmSouth Bank v. Drummond Co., 589 So. 2d 715 (Ala. 1991) addressed this issue. In that case, a firm represented Client A in a litigation and Client B, a bank, in unrelated securities matters. During the course of the litigation, Client B, in its fiduciary capacity as a trustee, retained separate counsel and joined the lawsuit against Client A. Client A agreed to waive the conflict, but Client B refused. The law firm promptly withdrew as counsel for Client B and continued to represent Client A in the lawsuit. Former Client B then moved to disqualify the law firm. The Alabama Supreme Court held that the law firm had acted properly in withdrawing as counsel to Client B in the suit because the litigation was not related to the matters on which the firm had represented Client B."; "While the fact patterns are diverse, a number of other courts have taken a common sense approach to conflict issues in analogous circumstances, permitting the matter to be resolved by withdrawal from representation of a client, where little or no prejudice will result to that client. See, e.g., Monaghan v. S2S 33 Associates, L.P., 1994 WL 623185 (S.D.N.Y. Nov. 9, 1994); In re Wingspread Corp., 152 B.R. 861 (Bankr. S.D.N.Y. 1993); Pearson v. Singing River Medical Center Inc., 757 F. Supp. 768 (S.D. Miss. 1991); Gould, Inc. v. Mitsui Min. & Smelting Co., 738 F. Supp. 1121 (N.D. Ohio 1990); Hardford Accident & Indemnity Co. v. RJR Nabisco, Inc., 721 F. Supp. 534 (S.D.N.Y. 1989); Penwalt Corp. v. Plough, Inc., 85 F.R.D. 264 (D. Del. 1980)."; "[W]e would view the situation quite differently if A were a prospective new client who had approached the law firm to seek the firm's services in a suit against B, an existing client of the firm. In that situation, there is the specter that the law firm was chosen precisely because it had represented the prospective defendant and thus the firm may presumptively be aware of certain facts or attitudes of the prospective defendant that could be useful to the potential new client. Second, in such a situation there is by definition no prior relationship between the prospective client and the law firm and thus there would be no apparent prejudice in requiring the prospective client to find other counsel. Third, the withdrawal of the firm from providing ongoing services for the existing client would almost certainly result in some prejudice, disruption or additional expense for the existing client."; "It is important to emphasize that in the question presented by the inquiry it is clear that the law firm was required to withdraw from at least one representation. The law firm either had to forego representing Client A in the administrative proceeding or cease representing Client B in the unrelated matters. Because the firm faced that choice and because at least one client was going to lose the firm's services for some purposes, it is pertinent to consider the competing equities, including the

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relative potential prejudice to each client from withdrawal of the representation of that client." (emphasis added)).

Most courts and bars recognize and harshly apply the hot potato rule approach.

• Biomatrix Specialty Pharmacy, LLC v. Horizon Healthcare Servs., Inc., Case No. 18-61680-CIV-MORENO/SELTZER, 2018 U.S. Dist. LEXIS 216660, at *4 (S.D. Fla. Dec. 27, 2018) (disqualifying DLA Piper’s from a lawsuit against one of its former clients that it had earlier represented in communicating with another one of its clients about an issue the two clients had; finding that the earlier call constituted an attorney-client relationship; finding the hot potato rule inapplicable, but nevertheless disqualifying DLA Piper; “The relationship between DLA Piper and Horizon ended in May 2018 and, two months later, DLA Piper filed this litigation on behalf of BioMatrix Plaintiffs and against Horizon seeking payment for those same claims that had been discussed in December 2017.”).

• Altova GmBH v. Syncro Soft SRL, 320 F. Supp. 3d 314, 317, 318, 319, 320 (D. Mass. 2018) (disqualifying a law firm which dropped a client (which it had billed for only 50 hours of work over 13 years) so the firm could represent a competitor in a lawsuit against the former client; quoting the law firm's retainer letter with the client, which permitted its withdrawal under certain circumstances; “'Occasionally, because of ethical considerations, attorneys are required to withdraw from the representation of clients. While we do not anticipate having to withdraw from your representation, you should be aware that because our firm represents a large number of clients, there is always a possibility that a conflict of interest might develop which would force us to cease representing you. However, we would only do so upon reasonable notice.'“; adopting the “hot potato” approach; “Altova disclosed its patent dispute with Syncro Soft to Sunstein in late June 2017, and terminated its relationship with Syncro Soft on July 6, 2017.”; “Some courts have adopted the judicially created 'hot potato' doctrine in their conflict of interest analysis by holding that lawyers should, as a general matter, remain loyal to their current client and decline to take on a new conflicting representation.”; rejecting the law firm's argument that the adversity was unforeseeable; “As Sunstein acknowledges, it could not simultaneously uphold its duty of loyalty to Syncro Soft and its duty of confidentiality to Altova between late June and July 6, 2017, so it withdrew from representing Syncro Soft only. It points out that in the 13-year relationship. Sunstein had billed Syncro Soft for less than 50 hours of work. Still, although Syncro Soft was not a lucrative client, it had been a client for a long time. Sunstein's course of action was not the appropriate one.”; “But Sunstein argues that its decision to withdraw from representing Syncro Soft is allowed under Comment 5 to Rule 1.7 because the conflict was unforeseeable.”; “A reasonable lawyer should have known that there was a significant risk that Altova's interests would become adverse

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to Syncro Soft's concerning their competing XML products no later than November 2016 when Altova's patent issued, and then should have obtained written, informed consent from both clients or withdrawn from representing both parties on that matter. The companies were direct competitors who sold similar XML editor software products. Sunstein knew that Altoma vigorously protected its intellectual property rights. In fact, Altova had previously sent Syncro Soft a cease and desist letter related to alleged copyright infringement involving this software. For these reasons, this patent dispute is not the type of unforeseeable development contemplated by Comment 5.”; also holding that the withdraw was not permitted under the retainer letter provision; “Sunstein emailed Vasile out of the blue on July 6, 2017, terminating their relationship forthwith without discussion. Sunstein argues it gave 'reasonable notice' with respect to the incoming patent suit, so it met its obligations under the engagement letter. I disagree. By undertaking continuing representation in the engagement letter, Sunstein owed Syncro Soft a duty of undivided loyalty during the representation. Sunstein cannot simply choose the more profitable client and drop the other.”).

• McLain v. Prop. & Cas. Ins. Co., Civ. A. No. 3:16CV843-TSL-RHW, 2017 U.S. Dist. LEXIS 62636, at *1, *2-3, *4-5, *5, *8-9 (S.D. Miss. Apr. 25, 2017) (disqualifying a lawyer who terminated an attorney-client relationship with Allstate in order to take a matter against it; "McLain signed a contract to retain Gammill's law firm on October 11, 2016. . . . On October 12, 2016, Gammill sent a letter terminating the firm's attorney-client relationship with Allstate."; "[T]he colloquially termed 'hot potato' doctrine serves as an exception to the general rule that the status of a client is determined by the date of the filed complaint. . . . Although the Fifth Circuit has not explicitly adopted the 'hot potato' doctrine, the case law discussing this concept as an adjunct to an attorney's duty of loyalty is instructive."; "According to Gammill, at the time he terminated his relationship with Allstate, he had not received any new work from Allstate in over a year. . . . His firm was wrapping up all of its work with Allstate and planned to terminate its relationship with Allstate based on the fact that it was not getting any new cases. . . . Gammill testified that the firm had a 'handful' of open files when it terminated its relationship with Allstate but that the 'majority were right at the end of the span of their life.'. . . He estimated that fewer than 20 files were transferred following the termination. . . . Gammill then filed the instant lawsuit on behalf of McLain on October 27, 2016, approximately two weeks after terminating the firm's relationship with Allstate."; "The Court finds that Gammill and his law firm had an attorney-client relationship with Allstate when McClain signed a contract for representation on October 11, 2016. If the Court simply considered the date that Gammill filed a complaint on behalf of McLain, then Allstate would be considered a former client and the rules regarding successive representation would apply. However, the Court takes a more expansive view of 'representation' to include events prior to the filing of the complaint

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and concludes that Gammill represented, albeit briefly, both Allstate and McLain simultaneously. Moreover, the Court finds that Gammill should have declined to represent McLain in the first place, given the duty of loyalty owed to Allstate as a current client."; "In the instant case, there is no indication that exceptional circumstances exist to allow concurrent representation. Gammill voluntarily entered into an attorney-client relationship with McLain despite knowing that he represented Allstate in several pending matters. By operation of Rule 1.7, Gammill should have declined to represent McLain. By operation of the 'hot potato' doctrine, Gammill's immediate termination of his relationship with Allstate did not cure the impropriety. . . . [I]n withdrawing representation of Allstate to pursue a new, more attractive representation, Gammill violated the duty of loyalty he owed to Allstate.").

• Markham Concepts, Inc. v. Hasbro, Inc., 196 F. Supp. 3d 345, 347, 349 & n.1, 349-50, 351, 351-52. 352. 352-53, 353 (D.R.I. 2016) (finding that Greenberg Traurig could not turn a current client into a former client by withdrawing from the representation; disqualifying Greenberg Traurig for the "hot potato" rule; "Until Solomon and Lazaroff's move, GT [Greenberg Traurig] represented Defendant Hasbro in a number of patent applications and was actively seeking to expand its representation of the company. Solomon and Lazaroff, however, sought to bring this matter to GT, which would have created a direct conflict with GT's representation of Hasbro. When Hasbro declined GT's request to waive the conflict, GT terminated its relationship with Hasbro and took on the Markham matter. Hasbro promptly moved to disqualify GT from the Markham litigation on the grounds that GT was conflicted out under the Rhode Island Rules of Professional Conduct."; "The Rhode Island Supreme Court has not expressly adopted the hot potato doctrine, and courts interpreting the RIRPC [Rhode Island Rules of Prof'l Conduct] have only referenced it in passing. See Ogden Energy Res. Corp. v. State of R.I., No. CIV. A. 92-0600T, 1993 WL 406375, at *3 n.7 (D.R.I. June 23, 1993) (noting the existence of the 'hot potato' doctrine, but deciding the conflict issue on other grounds). But, a number of other jurisdictions recognize the rule. See, e.g., Merck Eprova AG v. ProThera, Inc., 670 F. Supp. 2d 201, 209 (S.D.N.Y. 2009) (collecting cases); ValuePart, Inc. v. Clements, No. 06 C 2709, 2006 U.S. Dist. LEXIS 98167, 2006 WL 2252541, at *2 (N.D. Ill. Aug. 2, 2006); Int'l Longshoremen's Ass'n, Local Union 1332 v. Int'l Longshoremen's Ass'n, 909 F. Supp. 287, 293 (E.D. Pa. 1995); Picker Int'l, Inc. v. Varian Assoc., Inc., 670 F. Supp. 1363, 1365-66 (N.D. Ohio 1987), aff'd, 869 F.2d 578 (Fed. Cir. 1989)."; "GT's treatment of Hasbro falls squarely within the scope of the doctrine. Prior to the Markham conflict, GT had not only represented Hasbro for eight years, but was actively seeking to expand its relationship with the company. Then, as far as the Court can tell, GT decided to abruptly drop Hasbro as a client only after Hasbro refused to waive the Markham conflict. If GT could convert Hasbro to its former client by quickly dropping it in the face of an imminent conflict, then any firm could

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avoid Rule 1.7 'by simply converting a present client into a former one.' Picker Int'l, Inc., 670 F. Supp. at 1366. Such a rule would render meaningless the duty of loyalty a lawyer owes to his or her clients. Accordingly, for the purposes of this Motion, Hasbro is GT's current client."; "This is not to say that a lawyer may never drop a client. If, for whatever reason, GT thought it best not to continue representing Hasbro, it could have sought to wind down its representation and declined to take on new matters. The issue here is that GT apparently dropped Hasbro solely to assume a conflicting representation. As detailed in this Order, this breached GT's duty of loyalty to Hasbro in violation of Rule 1.7."; "Hasbro argues that the hot potato doctrine bars GT from representing Markham per se. In support, Hasbro quotes a number of out-of-district cases that hold, generally, '[c]oncurrent representation triggers a per se rule of disqualification – even on wholly unrelated matters.' . . . Hasbro then tries to extend this per se rule to the RIRPC by pointing to cases in which this Court disqualified counsel due to a conflict. The cases on which Hasbro relies, however, do not support Hasbro's assertion."; "GT, therefore is not automatically disqualified from this action because it dropped Hasbro as a client to avoid a conflict; rather the Court must examine the facts underlying the conflict situation."; "This is not a case where the partnerships of two firms voted to merge, or where one existing firm client decided to sue another firm client. In those situations, conflicts are inevitable, often beyond the control of the individual attorneys who represent the clients, and warrant a more sympathetic analysis. Here, by contrast, GT identified the conflict prior to Solomon and Lazaroff joining the firm. All attorneys involved had the ability to remain loyal to their respective clients. GT started down this path when it asked Hasbro to waive the conflict with Markham before it hired Solomon and Lazaroff. But when Hasbro refused to give GT the answer it wanted, the RIRPC clearly instructed GT on its choice: it could have either declined to take on the Markham matter, or declined to hire Solomon and Lazaroff (at least until the matter was completed). See RIRPC 1.7 cmt. 3."; "And, if the Markham matter was so important to Solomon, and Lazaroff (or Solomon and Lazaroff so important to Markham, as they claim in their brief) the Rules provided them a variety of options. They could have remained with their prior firm until the action concluded, or found another firm to join that did not present a conflict with Markham. Alternatively, if moving to GT was their only option, Solomon and Lazaroff could have made other arrangements for Markham to remain at Cadwalder. They could have elevated the role of one of the other attorneys who have entered appearances on Markham's behalf, or they could have introduced her to other competent counsel who could handle the case without the specter of a conflict of interest hanging over the representation. In any event, what is abundantly clear is that this conflict results primarily, if not solely, because of the action and choices of Markham's lawyers and GT. Solomon and Lazaroff decided to risk the consequences of a known conflict of interest in order to join GT; GT consciously disregarded its duty of loyalty to Hasbro in favor of Markham. This conduct does not comply

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with Rule 1.7 and requires the Court to disqualify GT, Solomon, and Lazaroff from this action."; "GT's strongest – albeit unsuccessful – argument is that the prejudices weigh against disqualification. It begins by claiming that Hasbro has not articulated any harm it will suffer from losing GT as its lawyer. For starters, this is not true. GT had ongoing patent applications for which Hasbro must now seek alternative counsel. This will certainly come with some cost to Hasbro. Yet, more importantly, GT's argument overlooks the intangible harm that comes with ethical violations. As this Court has previously noted, '[w]hile the spurning of a longtime and intimate client is particularly troubling, any perceived disloyalty to even a 'sporadic' client besmirches the reputation of the legal profession' and has 'the potential to erode public confidence in attorneys.'" (citation omitted); "GT urges the Court look not to Hasbro's concerns, but to consider the burden that disqualification would place on Markham. GT overstates the weight of this burden. . . . While the Court is sympathetic to Markham's plight, any prejudice experienced by Markham resulted from it and/or its lawyers decisions, and does not outweigh the duty of loyalty GT owed to Hasbro, or the burden to Hasbro of disregarding it."; "GT also argues that Hasbro is responsible for this conflict because it unreasonably refused to waive it. The Court can imagine some instances where a client's refusal to waive a conflict, for example, where the stated conditions in a retainer agreement are met, could be unreasonable and warrant denial of a disqualification motion. This, however, is not such an instance. Markham alleges Hasbro engaged in serious misconduct, including the unlawful use of the intellectually property rights for the Game of Life. If Markham is correct, its damages could be significant. So, even assuming the conditions in the retainer agreement with GT are met, it is reasonable that Hasbro would not want its own lawyers prosecuting such allegations and seeking significant damages from it."; "Finally, GT argues that its decision to drop Hasbro is justified because its relationship with Hasbro was sporadic and the two matters were unrelated. First off, GT and Hasbro's relationship was not sporadic. GT had continuously represented Hasbro since 2008 and expressly sought to expand its relationship only weeks before dropping the company as a client. Moreover, under Rule 1.7, the applicable rule in this case, GT cannot disregard its ethical duty of loyalty to a current client just because a conflict involves unrelated matters. There are instances where attorneys may have sufficient cause to override the duty of loyalty that binds a lawyer to his or her clients. But, again, this is not one of them. As far as the Court can tell, the Markham conflict constitutes the only reason GT abruptly decided to end its longstanding relationship with Hasbro. So while GT's net billings to Hasbro may not have been substantial, the representation was regular and sufficient to warrant a try at growing the relationship. The test is not one where the more valuable matter wins the loyalty contest. Hasbro's exercise of its discretion in declining to waive this conflict is insufficient justification to warrant overlooking GT's duty of loyalty to Hasbro and GT's clear violation of RIRPC Rule 1.7." (footnote omitted) (emphases added)).

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• Nustar Farms, LLC v. Zylstra, 880 N.W.2d 478 (Iowa 2016) (disqualifying a lawyer; using the current client conflicts standard; finding that the law firm had improperly attempted to terminate a representation in the same email that the law firm announced that it would sue the client).

• Qwest Corp. v. Anovian, Inc., Case No. C08-1715RSM, 2010 U.S. Dist. LEXIS 46678, at *14-15 (W.D. Wash. Apr. 7, 2013) (disqualifying a law firm representing Qwest, because its law firm was currently representing defendant Broadvox at the time the firm began to represent Qwest; rejecting the firm's argument that Broadvox was a former client; pointing to a law firm partner's letter to Broadvox acknowledging the current representation and withdrawing from representing Broadvox; "'Of course, Alex, a client always retains the unfettered right to deny a request for a conflict waiver. However, the basis you gave to Rob and me for doing so in this case -- 'not wanting to do anything that would make it more convenient for Qwest to litigate against Broadvox' -- is not, in our view, consistent with your commitment to be reasonable in considering such waivers. . . . As such, and as we had discussed at the time our retainer agreement was negotiated, in the absence of such a waiver, we have chosen to terminate our attorney-client relationship with [Broadvox].'").

• Little Italy Dev. LLC v. Chi. Title Ins. Co., Case No. 1:11 CV 112, 2011 U.S. Dist. LEXIS 138335, at *16-17, *17, *18, *19 n.4, *29-30, *30, *32 (N.D. Ohio Dec. 1, 2011) (disqualifying Thompson Hine from representing its client Little Italy Development in an action against Chicago Title, because Thompson Hine advised Little Italy in a coverage matter adverse to Chicago Title while currently representing Chicago Title in unrelated matters, even though those matters later ended; noting that Thompson Hine had represented Chicago Title beginning in August 2007, obtaining a judgment against a debtor, which the firm continued to seek to collect; noting that Thompson Hine last billed time for that matter on June 7, 2010, and that on July 1, 2011, Chicago Title had sent an email to the firm asking for information about the status of the collection matter; explaining that Thompson Hine had represented Chicago Title in a similar collection matter beginning on December 8, 2008, and that Chicago Title requested that the law firm close the file on August 30, 2010; explaining that Thompson Hine had begun to represent Little Italy ("LID") in 2009; assessing when Thompson Hine's representation of LID had become adverse to Chicago Title; noting the parties' differing positions; "Chicago Title argues that the interests of LID and Chicago Title were adverse as of August 24, 2009, the date on which Chicago Title denied coverage for the defense costs in the Underlying Litigation. LID argues that the interests were not 'directly adverse' until after Chicago Title was no longer a client of Thompson Hine. According to LID, the parties did not become directly adverse until August 27, 2010, the date on which Chicago Title provided a legal analysis supporting its rejection of the complete defense rule. By the

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date, the Moore and Brown matters had concluded."; agreeing with Chicago Title that direct adversity began in August 2009 rather than in August 2010; "Upon review, the Court finds that the interests of LID and Chicago Title were 'directly adverse' during the time Thompson Hine represented both parties. It is undisputed that Chicago Title denied coverage in August of 2009. Even assuming arguendo that the interests of the parties were not adverse of that denial letter, Chicago Title repeatedly stood by this initial coverage determination and Thompson Hine, on behalf of LID, repeatedly corresponded with Chicago Title in an effort to convince Chicago Title to provide coverage." (footnote omitted); finding that Thompson Hine's December 15, 2009 contingency fee agreement with LID confirmed the existence of adversity as of that time; "[T]he contingency fee agreement evidences LID's belief that litigation was likely. Even more troubling, the agreement puts Thompson Hine squarely at the divergent interests of its own two clients."; finding that as of the time adversity arose, Thompson Hine was still representing Chicago Title; "Thompson Hine billed Chicago Title for work performed on August 30, 2010, and email correspondence on that date indicates that 'the problem with our ongoing case is that we are handling the garnishment on a judgment we obtained on behalf of [Chicago Title]. The amount of legal work is minimal but the work could go for a long time. Maybe we should look for a way to end our representation, if that's ethically permissible.' Obviously, as of this date, Thompson Hine believed it still represented Chicago Title. . . . This Court concluded that the interests of the parties were 'directly adverse' before Thompson Hine suggested terminating the relationship with Chicago Title. Having already committed an ethical violation, Thompson Hine's attempt to argue that Chicago Title's uninformed agreement to end the relationship somehow absolves Thompson Hine of the wrongdoing is unavailing."; finding that Rule 1.7 did not require disqualification, but nevertheless disqualifying Thompson Hines; "This Court finds that nothing on the face of Rule 1.7 requires that a court disqualify an attorney for a violation of that rule. . . . [T]he Court agrees with LID that the disqualification is not per se required."; "[T]he nature of the conflict is greatly disturbing to the Court. In the typical conflict of interest case, the attorney has no stake in the conflict, other than perhaps obtaining additional business from a 'lucrative' client. In this case, however, Thompson Hine appears to have renegotiated a favorable fee agreement with LID so that the fees LID incurred in the Underlying Litigation could be paid by Chicago Title, who was another firm client at the time the fee agreement was signed. This is only exacerbated by the fact that LID's principal member is the brother of the head of the real estate department at Thompson Hine."; "In this case, the Court finds that Thompson Hine clearly violated its duty of undivided loyalty by taking adverse action against its client, Chicago Title, in favor of another client, LID." (emphases added)).

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• Philadelphia LEO 2009-7 (7/2009) (analyzing a situation in which a law firm had "for a long period of time" represented the builder of a proposed office building, but learned two weeks before a scheduled zoning presentation that a neighbor of the building (whom the law firm represented on unrelated matters) opposed the project; explaining the effect of the later-developing conflict; "The hot potato rule in general disallows a law firm from discharging a client for the purpose of eliminating a conflict where it desires to accept the representation of another client. This rule is a salutary one in that it prevents law firms from violating a duty of loyalty to a client that already exists in favor of a perhaps more lucrative client relationship.").

• Philadelphia LEO 2009-4 (3/2009) ("The inquirer previously represented Company A in connection with patent and trademark procurement. Company A then sold its business, along with all patents and trademarks, to Company B. The inquirer was not involved in any way with the asset purchase and did not represent Company A after the sale. The inquirer currently represents Company B in connection with maintaining IP rights related to the assets it purchased from Company A. Company A now wants to consult with the inquirer about a dispute with Company B concerning the terms of the asset purchase. The inquirer asks whether the so-called 'hot potato' rule prohibits him from terminating his representation of Company B so that he can represent Company A in the asset purchase dispute."; "Absent compliance with Rule 1.7(b), which includes informed consent from both clients, the inquirer can not represent Company A because the matter is directly adverse to the interests of the inquirer's current client, Company B. Moreover, the ethical violation cannot be avoided by the inquirer terminating his representation of Company B. As noted in International Longshoremen's Association, 909 F. Supp. 287, 293 (E.D. Pa. 1995), '[A]n attorney may not drop one client like a 'hot potato' in order to avoid a conflict with another, more remunerative client.'" (emphasis added)).

• New York City LEO 2005-05 (6/2005) ("When, in the course of continuing representation of multiple clients, a conflict arises through no fault of the lawyer that was not reasonably foreseeable at the outset of the representation, does not involve the exposure of material confidential information, and that cannot be resolved by the consent of the clients, a lawyer is not invariably required to withdraw from representing a client in the matter in which the conflict has arisen. The lawyer should be guided by the factors identified in this opinion in deciding from which representation to withdraw. In reaching this decision, the overarching factor should be which client will suffer the most prejudice as a consequence of withdrawal. In addition, the attorney should consider the origin of the conflict, including the extent of opportunistic maneuvering by one of the clients, the effect of withdrawal on the lawyer's vigor of representation for the remaining client, and other factors mentioned in this opinion."; "While the Code may not expressly

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prevent a lawyer from dropping one client in order to represent another, it is well-settled that the duty of loyalty prevents an attorney from doing so opportunistically. For example, under the so-called 'hot-potato' rule, a lawyer or law firm should not ordinarily be permitted to abandon one client in order to take on the representation of a more lucrative client, where representing both would create a conflict of interest. This approach has been followed in several court cases involving attorney disqualification motions, where courts have articulated the need to protect confidential client information, as well as to protect the disfavored client from being 'cut adrift' simply because a more lucrative client comes along with a claim against it. See, e.g., Hartford Accident and Indemnity Co. v. RJR Nabisco, Inc., 721 F. Supp. 534, 540 (S.D.N.Y. 1989) (finding against disqualification, but discussing rule: 'Clearly, no court should condone such conduct [dropping the disfavored client in attempt to avoid disqualification motion]; it smacks of disloyalty where loyalty is owed, and notwithstanding the apparent elimination of the conflict, there remains the possibility that former client confidences will be abused'); In re Wingspread Corp., 152 B.R. 861, 864 (S.D.N.Y. 1993) (ruling against disqualification, but discussing rule); AmSouth Bank, N.A. v. Drummond Co., 589 So. 2d 715, 721-722 (Ala. 1991) (finding against disqualification, but discussing rule: 'a law firm should not be allowed to abandon its absolute duty of loyalty to one of its clients so that it can benefit from a conflict of interest that it has created'). The 'hot potato' rule prohibiting the abandonment of a current client to take on a more lucrative representation is a salutary one, but it is not commanded by the text of the Code or the ABA Model Rules and should not apply to situations where its underlying rationale would not be served. The rule condemns affirmative self-interested acts of disloyalty by an attorney to an existing client in order to switch allegiance to a new one. In circumstances where an attorney is representing two clients, and an unforeseeable conflict between the two arises during the ongoing representation of both, concerns about opportunistic attorney activity are less evident: by definition, the problem was 'thrust upon' the lawyer." (emphasis added)).

• Santacroce v. Neff, 134 F. Supp. 2d 366, 370, 371 (D.N.J. 2001) (recognizing the "hot potato doctrine," and disqualifying a law firm which attempted to drop a client in order to take a matter adverse to it, explaining that the firm dropped the client on December 22, 2000 and therefore was not representing the former client at the time she filed a complaint on January 4, 2001; "Here, Santacroce was fired as a client by Jaffe & Asher because it got wind of her proposed complaint against the Estate. This conclusion is compelled by the timing of the December 21 or 22 sharing of the complaint by Rosenbaum with Stifelman, the then-attorney for the Estate, coupled with the December 22 letter, which referred to her commencing an action against the Estate, asserted a conflict and fired her as a client. Thus, the appropriate date for evaluating the applicability of RPC 1.7(a) is not the filing date of the

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complaint, by which time Santacroce was a former client of Jaffe & Asher. Under the circumstances here, the appropriate date is after Jaffe & Asher found out about the proposed complaint but before the firm fired Santacroce [sic]. During that interval, Jaffe & Asher represented both Santacroce and the Estate. At that time, there was a clear conflict (as Jaffe & Asher asserted in the December 22 letter) and RPC 1.7(a) applies and precludes Jaffe & Asher's representation of defendants herein."; explaining that "[w]hen Jaffe & Asher found out that the firm's two clients, Santacroce and the Estate, were at odds, it dropped Santacroce like a 'hot potato.' The firm dropped Santacroce even before suit was filed in a transparent attempt to represent the extraordinarily more remunerative client, the Estate of multimillionaire Goldberg. Although Jaffe & Asher claim that they terminated representation of Santacroce's only due to her inability to pay legal fees, this is belied by their own words. The firm itself refers to the 'conflict of interest' in their December 22, 2000 letter to Santacroce."; disqualifying the law firm).

• International Longshoremen's Ass 'n, Local Union 1332 v. International Longshoremen's Ass'n, 909 F. Supp. 287, 293 (E.D. Pa. 1995) ("However, an attorney may not drop one client like a 'hot potato' in order to avoid a conflict with another, more remunerative client.").

• Schiffli Embroidery Workers Pension Fund v. Ryan, Beck & Co., Civ. A. No. 91-5433, 1994 U.S. Dist. LEXIS 2154, at *11 n.2 (D.N.J. Feb. 23, 1994) (disapproving of "instances where a lawyer concurrently representing two clients simultaneously withdraws as counsel for one client and sues the reconstituted 'former' client on behalf of the other client").

• Harrison v. Fisons Corp., 819 F. Supp. 1039, 1041 (M.D. Fla. 1993) (disqualifying McDermott, Will and Emery; "Nor does MW&E's effort to end its relationship with First Union affect the outcome. A lawyer may not evade ethical responsibilities by choosing to jettison a client whose continuing representation becomes awkward. Allowing lawyers to pick the more attractive representation would denigrate the fundamental concept of client loyalty.").

• Stratagem Dev. Corp. v. Heron Int'l N.V., 756 F. Supp. 789, 793, 794 (S.D.N.Y. 1991) (finding that a law firm could not avoid a conflict by terminating a representation of a client against whom the firm wanted to take an adverse position; disqualifying Epstein Becker & Green [Epstein], because it represented a wholly owned subsidiary of a company that it later became adverse to; noting that Epstein Becker & Green sent a letter with the following language to its client; "'Should you feel that a conflict, actual or potential, may exist, or should you want us to resign from this case because of our ongoing representation of Stratagem and affiliates, please let us know and we will resign as counsel in the labor matter.'"; explaining that Epstein sent a letter with the following language after the client objected to the firm's adversity to

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its parent: "'From the tone and tenor of your letter, it is apparent that you would feel uncomfortable if we were to continue to represent [FSC] . . . . Accordingly, we hereby notify you that we are withdrawing as counsel to Fidelity in this lawsuit.'"; "Epstein Becker's obligations to Stratagem do not trump those it owes to FSC, even if they pre-dated them. Once Epstein Becker undertook to represent FSC, it assumed the full panoply of duties that a law firm owes to its client. Epstein Becker may not undertake to represent two potentially adverse clients and then, when the potential conflict becomes actuality, pick and choose between them. Nor may it seek consent for dual representation and, when such is not forthcoming, jettison the uncooperative client.").

• Harte Biltmore Ltd. v. First Pennsylvania Bank, N.A., 655 F. Supp. 419, 421, 422 (S.D. Fla. 1987) (explaining that plaintiffs sought to disqualify the law firm which was representing the defendant bank; noting that as a result of a law firm merger, a lawyer representing one of the plaintiffs (on an unrelated matter) and the lawyer representing the bank ended up in the same firm; explaining that the firm withdrew from its representation of the plaintiff when it learned of the conflicts; rejecting the law firm's argument that the plaintiff was a former client, rather than a current client; holding that the law firm had "breached the duty of loyalty" owed to the plaintiff when it withdrew; discussing "[p]ublic confidence in lawyers and the legal system must necessarily be undermined when a lawyer suddenly abandons one client in favor of another. This is true regardless of the nature and extent of the representations of the clients involved and the size of the firm, how many separate offices it may maintain, or the number of jurisdictions in which the firm or its members may practice.").

Some law firms survive disqualification motions despite the "hot potato" doctrine.

• Regal Cinemas, Inc. v. Shops at Summerlin N., LP, No. 2:16-cv-02854-MCE- AC, 2017 U.S. Dist. LEXIS 149497, at *7-8, *8, *8-9, *9 (E.D. Cal. Sept. 14, 2017) (rejecting a client's argument that a law firm had dropped it like a “hot potato” and therefore could not handle a matter adverse to the now-former client; “At bottom, the issue of whether Loeb & Loeb must be qualified as counsel for Regal Cinemas hinges on whether the 2015 matter was concluded or ongoing when Loeb took on Regal as a client in October 2016. Under both the California Rules of Professional Conduct and the parties' engagement letter, Loeb's conduct in taking on Regal Cinemas as a client was proper if and only if the 2015 matter concerning HHC had concluded before October 2016. See Cal. R. Prof. Conduct 3-310; Frankenheimer Decl. ¶ 3, Ex. 1.”; “Loeb's October 2016 disengagement letter, which was sent the same day Loeb announced that it hired Mr. Hubsch – and the language in that letter indicating termination of the attorney-client relationship was 'effective immediately' – certainly weighs in favor of disqualification. But it is

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not unreasonable to believe that Loeb simply sent the letter in an abundance of caution, likely when someone realized late in the game that the addition of Mr. Heuber to the firm might pose a problem. Similarly, it is not reasonable to believe that the 'effective immediately' language contained in that letter was included by mistake (perhaps because the firm uses a boilerplate disengagement letter). The sending of an unnecessary disengagement letter is not enough to create a conflict where one didn't exist without the letter.” (footnote omitted); “The Court therefore must look beyond that single letter. In so doing, the court finds nothing that otherwise indicates the 2015 matter was ongoing, as Defendants claim. First, the agreement itself was limited in scope and provided that additional work 'may be agreed upon from time to time,' evincing the parties' apparent intent to enter into the 2015 agreement solely for the purpose of completing the subject transaction. See Banning Ranch Conservancy v. Super. Ct., 193 Cal. App. 4th 903, 911-915, 123 Cal. Rptr. 3d 348 (2011). That transaction was concluded upon execution of the relevant documents in January 2016, and with the exception of just two hours of work in June, Loeb performed no work on the matter after January.”; “Defendants' argument therefore relies on the fact that Loeb performed two hours of follow-up work in June 2016. Defendants claim these two hours indicate that the 2015 matter was ongoing and simply dormant from January to June, and again from June to the present. The Court is not so convinced. Two hours of work to wind up an engagement after five months of silence is not enough to indicate that a matter is continuing. Nor was it necessary for Loeb to open a new matter even if the 2015 matter had long been concluded, and its failure to do so does not necessarily indicate that the 2015 matter was still open. The follow-up work was just that – follow up. Without more, the Court is not inclined to disqualify counsel and deprive Plaintiff of the counsel of its choice.” (emphasis added)).

• Lectric Limited, Inc. v. D G W, Inc., No. 15 C 7744, 2017 U.S. Dist. LEXIS 44867, at *2-3, *14, *20, *22, *24 (N.D. Ill. Mar. 28, 2017) (declining to disqualify a law firm which dropped one of its clients in order to take a matter adverse to it, although striking its pleadings until the law firm could prove that it had obtained the required consents; "Lectric Limited sued D G W, Inc. d/b/a Melrose T-Top International ('DGW/Melrose'), The Parts Place, Incorporated ('Parts Place'), and JVI Holdings, LLC ('JVI') (collectively, the 'Defendants') regarding their use and claimed ownership of marks and logos that conflicted with Lectric Limited's common law trademark claims. Lectric Limited then learned that Griffin Williams LLP ('Griffin Williams') represented each Defendant despite the positions in their answers and counterclaims that might adversely affect other Defendants, if true. Lectric Limited moves to disqualify Griffin Williams from representing any Defendant because of what Lectric Limited alleges are unwaivable conflicts of interest and because one of Griffin Williams' partners will need to testify in this litigation. The Court grants in part and denies in part Lectric Limited's motion [52]. Because there is a question

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whether Griffin Williams obtained informed consent to represent each Defendant concurrently and because the Court finds that Griffin Williams ceased representation of its first client, DGW/Melrose, in order to continue representing Parts Place and JVI, the Court finds that an ethical violation occurred. The Court will not disqualify Griffin Williams from continued participation in this litigation if each Defendant now provides informed consent, but, as a sanction, the Court strikes Defendants' previous pleadings filed by Griffin Williams. And because Lectric Limited has not shown that Griffin Williams' partner will be a necessary witness in this case, the Court denies without prejudice Lectric Limited's motion to disqualify the individual attorney."; "[W]hile direct adverse representation creates a concurrent conflict of interest, a representation of multiple parties that creates a significant risk of materially limiting the representation of another client also creates a conflict of interest."; "[E]ven if the waivers did extend to those other co-representations, as discussed above, Griffin Williams violated ethical rules by dropping DGW/Melrose as a client in order to continue representing Parts Place and JVI."; "If Griffin Williams obtains informed consent from all three Defendants, Griffin Williams might be able to continue to represent Parts Place and JVI because waivers would mean that (1) Griffin Williams' former client, DGW/Melrose provided written informed consent to Griffin Williams representing another materially adverse party in the same matter, in accordance with Model Rule 1.9 . . . ."; "To eliminate any specter of sub-par representation to date – especially now that Griffin Williams has cut ties with DGW/Melrose in an attempt to preserve its representation of Parts Place and JVI, leaving DGW/Melrose on the hook if Griffin Williams did provide less than the quality representation – the Court strikes DGW/Melrose's answer and affirmative defenses [32], Parts Place's original and correct answer and counterclaim [34, 36], JVI's answer [38], and DGW's amended counterclaim [44]. Upon providing the Court with proof of each Defendant's informed consent to Griffin Williams' continued representation of JVI and Parts Place following this Opinion and Order, the Court will allow Defendants to file new answers and counterclaims through their new counsel.").

• Victorinox AG v. B & F Sys., Inc., 200 F. Supp. 3d 423, 426, 426-27, 427 (S.D.N.Y. 2016) (declining to disqualify Locke Lord, but criticizing the firm for withdrawing from one of its attorney-client relations in an effort to avoid a conflict; explaining that after Locke Lord merged with Edwards Wildman, the firm simultaneously represented a client and was adverse to it in a litigation matter from January 12, 2015 until December 18, 2015; "Although the Court ultimately concludes there is no disqualifying taint in this case, the Court is troubled by three aspects of the record. First, representing a party to a litigation who is suing a party that you also represent in other matters is, in the absence of informed consent, a violation of New York's ethical rules, and thereby the rules of this Court. See N.Y. R. Prof'l Conduct 1.7; S.D.N.Y. Local Rule 1.5(b)(5)."; "Second, this violation of ethical standards was the

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result of negligent -- even grossly negligent -- practices on Locke Lord's part. In particular, Raymond E. LaDriere II, Esq., who acts as Locke Lord's ethics guru, testified that, when the firm merged with Edwards Wildman, it only conducted conflict checks on clients who had billed more than $100,000 in one or both of the previous two years. . . . Although this was initially a function of time restraints, even after the merger Locke Lord did not complete the conflict check . . . because the firm decided it was just not worth it to comply with its ethical obligations, and so has not performed a complete conflict check even to now."; "Third, the letter sent by Mr. Hardin to his former client B&F is misleading on its face. As Mr. Hardin conceded in his testimony, the letter conveys only that Locke Lord is terminating its relationship with B&F for economic reasons. . . . However, as Mr. Hardin also admitted, Locke Lord terminated the relationship with B&F not just for economic reasons but also because of the apparent conflict; indeed, the conflict was the precipitating cause of the termination. . . . The letter, however, contains nothing that would alert B&F to any conflict. . . . Moreover, Mr. Hardin undertook only a single, limited consultation with Mr. LaDriere, the ethics partner, on this issue and did not consult him at all on the contents of the letter."; "Despite all this, Mr. Hardin credibly testified there was no exchange of pertinent information relating to this case between Mr. Hardin in Texas and the litigation team in New York . . . and no one has adduced any evidence to the contrary . . . . Moreover, Locke Lord's representation of B&F was very substantially different from its representation of Victorinox, and there is no indication that the Victorinox litigation team even knew about the conflict. Although Hardin's conflict must be presumptively imputed to the firm overall . . . . Hardin testified that he did not contact the New York litigation team and instead 'created [his] own wall' separating himself from them. . . . Finally, Locke Lord's representation of B&F ceased in December 2015. At present, therefore, there does not appear to be any conflict, or even the appearance of a conflict."; "Locke Lord also argues that Victorinox will be prejudiced if forced to secure replacement appellate counsel at this late stage. In addition, Victorinox has unequivocally expressed that it wishes to keep Locke Lord as counsel."; "Because the concurrent representation ended in December 2015 and because there is no evidence that any material information passed between Hardin and the Victorinox litigation team, the Court concludes that there is no actual or apparent conflict disqualifying Locke Lord from its continued representation of Victorinox. Accordingly, defendants' motion to disqualify Locke Lord is hereby denied." (emphases added)).

• Garland v. Ford Motor Co., No. 2:12-00121, 2015 U.S. Dist. LEXIS 38505, at *16, *17-18, *18, *20, *22-23, *23, *23-24 (M.D. Tenn. Mar. 26, 2015) (declining to disqualify a law firm which had merged with another firm handling a matter directly adverse to one of the firm's current clients; acknowledging that the law firm had acted improperly, but finding that the balance of interests disfavored disqualification; "Butler Snow's invocation of

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Rule 1.9 is understandable since a 'more lenient standard [applies] to successive representation.' Filippi v. Elmont Union Free Dist. Bd. of Ed., 722 F. Supp. 2d 295, 305 n.2 (E.D.N.Y. 2010). However, 'courts universally hold that a law firm will not be allowed to drop a client in order to resolve a direct conflict of interest, thereby turning a present client into a former client.' El Camino Res., Ltd. v. Huntington Nat'l Bank, 623 F. Supp. 2d 863, 868 (W.D. Mich. 2007) (collecting cases). This is commonly referred to as the 'hot potato' doctrine or rule. See, Metro. Life Ins. Co. v. Guardian Life Ins. Co., 2009 U.S. Dist. LEXIS 42475, 2009 WL 1439717, at *3 (N.D. Ill. May 18, 2009) (the doctrine prohibits and [sic] attorney from dropping a client 'like a hot potato' when the more lucrative client [comes] along'); Santacroce v. Neff, 134 F. Supp. 2d 366, 367 (D.N.J. 2001) ('The 'Hot Potato Doctrine' has evolved to prevent attorneys from dropping one client like a 'hot potato' to avoid a conflict with another, more remunerative client.')."; "In this case, even though Butler Snow had access to Walker Tipps' client information on December 5, 2014 and even though it knew of the conflict as of January 9, 2015, it continued to represent Ford in five active matters in Mississippi when Walker Tipps joined the firm on February 9, 2015. In fact, Butler Snow did not file its motions to withdraw in those cases until some eight days later, and only after Ford had filed its Motion to Disqualify. Further, as of the date of the hearing before this Court (and maybe even to this day) the motions to withdraw in most of the cases remained pending, one had been dismissed without prejudice by the Mississippi Supreme Court and another was objected to by the plaintiff in the underlying case. Given this scenario, Butler Snow represented both Ford and Mr. Garland [commercial litigation action against Ford] at the same time in matters that were adverse. In doing so, Butler Snow violated Rule 1.7."; "Butler Snow's actions cannot be excused as mere inadvertence or oversight. At a minimum, it knew full well that Ford had indicated that it was unlikely to consent to a waiver of the conflict and, in fact, knew that it did not have written consent from Ford. Nevertheless it chose to go forward with the merger, bringing on lawyers who were actively suing Ford when Ford was a Butler Snow client."; "The violation of Rule 1.7 is clear. What is not so clear is whether disqualification is the appropriate remedy."; "Butler Snow's present predicament was not due to unforeseen circumstances, nor was it thrust upon it by circumstances outside of its control. . . . Rather, it made a knowing choice. As a consequence, the Court could simply follow what appears to be the majority approach and deem Butler Snow automatically disqualified from representing Mr. Garland in this case."; "The duty of loyalty to a client and the protection of client confidences are matters of paramount importance. If the Garland case was a consumer matter or if it was made clear to Butler Snow that Ford was not inclined to amicably part ways, the Court would likely stop the inquiry and disqualify counsel. However, the Court does not believe that Butler Snow's intention was to game the system to drop Ford like a 'hot potato,' even though that may have been the net result. Nor does the Court believe that confidential

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information garnered from Butler Snow's prior representation of Ford on entirely unrelated matters will be shared with those not entitled to it, given the ethical wall which has been erected and the representations made by counsel."; "On the other hand, disqualifying counsel at this late date would pose an undue hardship on Mr. Garland, an innocent in this matter who should not be subjected to such a draconian sanction. This case has been pending for more than two years, discovery has been completed, cross motions for summary judgment have been denied, and trial was set to comment [sic] within weeks of the Motion to Disqualify being filed. Although the Court is not privy to the figures, it has no doubt that Mr. Garland has spent a significant amount of money prosecuting this action and bringing new counsel up to speed will involve additional substantial expense."; "While Ford claims prejudice because it will have to hire and educate new counsel in the Mississippi litigation, that harm pales in comparison to that faced by Mr. Garland. Because the relationship between Ford and Butler Snow was governed by a yearly retainer contract, Ford has always faced the prospect of the relationship being terminated at the end of any year, either by its choice or Butler Snow's. Regardless, it appears beyond cavil that the relationship between Butler Snow and Ford has been irrevocably damaged such that Ford will have to engage new counsel whether Butler Snow is removed from this case or not.") (emphasis added).

• Metro. Life Ins. Co. v. Guardian Life Ins. Co., No. 06 C 5812, 2009 U.S. Dist. LEXIS 42475, at *3, *4-5, *9-10, *10-11 (N.D. Ill. May 18, 2009) (denying plaintiff's motion to disqualify Winston & Strawn from representing defendant, although finding that Winston had improperly terminated its representation of MetLife on unrelated matters; explaining that Winston had handled several unrelated matters for MetLife, which were arguably completed; noting that despite this fact, "[o]n February 18, 2009, in an email to MetLife's in house benefits attorney, Weisberg acknowledged that 'Guardian is an existing client,' but nevertheless sought a waiver from MetLife to represent Guardian. . . . MetLife refused to provide a waiver."; after receiving MetLife's denial, Winston sent a letter terminating its representation of MetLife; "Winston determined that its projects for MetLife had been completed, although not formally terminated. Importantly, the investigation revealed that Winston's representation of MetLife was, at most, sporadic and did not involve regularly scheduled meetings, conference calls or daily communication. In turn, Anderson and Thar concluded that MetLife was not a current client and, since all matters were complete, Winston could formally terminate its relationship with MetLife and represent Guardian without a conflict. On March 13, 2009 Rogers sent an email to his contacts at MetLife, confirming that Winston was not working on any active matters. . . . Then, on March 16, 2009 Winston sent a letter to Karen Francis-Moorer (MetLife refers to Francis- Moorer as a 'paralegal,' while Winston calls her a 'billing contact'), explaining that Winston's representation had concluded."; "[I]t is well-settled that once an

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attorney-client relationship is established, it does not terminate easily. . . . Absent an express termination, 'something inconsistent with the continuation of the relationship must transpire in order to end the relationship.'. . . Examples of inconsistent conduct include: a client filing a grievance against his attorney; a client retaining another attorney; or a client refusing to pay his attorney's bill."; "In this case there is nothing inconsistent with Winston's relationship with MetLife. And, without a formal termination of the parties' relationship, MetLife reasonably could have considered itself a current client of Winston at the time Guardian approached Winston to represent it in this case. More importantly, the record is void of any evidence suggesting that MetLife and Winston contemplated an abrupt end to their relationship. In all respects, the representation continued even after Winston completed the immediate projects that MetLife assigned to the firm. See Perillo v. Johnson, 205 F.3d 775, 798-99 (5th Cir. 2000) ('Where the prior representation has not unambiguously been terminated, or is followed closely by the subsequent representation, there is more likely to be a conflict arising from defense counsel's representation of the first client . . . .'); IBM Corp. v. Levin, 579 F.2d 271, 281-82 (3d Cir. 1978) (ruling that client was current client for conflict of interest analysis even where attorney had no specific assignment from client at the time the attorney undertook the adverse representation); Manoir- Electroalloys Corp. v. Amalloy Corp., 711 F. Supp. 188, 194 (D.N.J. 1989) (finding client to be a current client even though the law firm was not actively providing legal services to the client at the time the suit was filed and had not done so for four years); see also Quinones v. Miller, No. 01 C 10752, 2003 U.S. Dist. LEXIS 9176, 2003 WL 21276429, at *29 (S.D.N.Y. June 3, 2003) (the 'mere passage of time do[es] not end the attorney-client relationship'); cf. Caban v. United States, 281 F.3d 778, 784 n.4 (8th Cir. 2002) (finding in a criminal case that a conflict based on a concurrent representation despite attorney's representation that work for the client was inactive)."; nevertheless finding that disqualification was not an appropriate remedy).

• SWS Fin. Fund A v. Salomon Bros., Inc., 790 F. Supp. 1392, 1398, 1398-99, 1399, 1403 (N.D. Ill. 1992) (explaining that Schiff, Hardin and Waite which was then representing Salomon Brothers because it engaged in a series of discrete projects for the client, billed approximately $40,000 from May 1990 to June 1991; "The undisputed facts demonstrate that Schiff served Salomon Brothers over a thirteen month period, answering Salomon's commodity law questions as they arose. The comment makes clear that Salomon Brothers was entitled to 'assume' that Schiff would continue to be its lawyer on a continuing basis Schiff had the [sic] and that responsibility for clearing up any doubt as to whether the client-lawyer relationship persisted. Consequently, this court finds that Salomon was a present client at the time Schiff began to represent Hickey against Salomon."; explaining that an attorney-client relationship can be terminated in one of three ways, none of which applied; "First, the Drustar [Artromick Int'l, Inc. v. Drustar, 134 F.R.D. 226 (S.D. Ohio

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1991)] court stated that the relationship can be terminated by the express statement of either the attorney or the client. Second, acts inconsistent with the continuation of the relationship (e.g., the client's filing a grievance with the local bar association against the attorney) are a second means. In Drustar, the court ruled that the client was a former client because he had refused to pay the attorney's bill and had retained other lawyers to do legal work which that attorney had formerly performed. Third even without overt statements or acts by either party, the relationship may lapse over time."; noting that Schiff did not expressly terminate the relationship with Salomon, and that such a termination "would have been invalid if made for the purposes of dropping Salomon like a 'hot potato' in order to obtain the more lucrative business Hickey [Salomon's adversary] could provide"; also noting that "the parties' behavior was not inconsistent with the continuation of the relationship. Indeed, if anything their behavior weighs very heavily in the direction of finding that that relationship was continuing. On August 13, about the time that Schiff began its work for Hickey against Salomon, Mr. Rosenzweig called Salomon's General Counsel to obtain consent for Schiff's representation of a commodity trading advisor in negotiations with Salomon. The other contacts between the firm and Salomon uniformly were conducted with the tone of a friendly, professional relationship, not at all inconsistent with the continuation of the lawyer-client relationship."; also noting that the relationship did not terminate through the passage of time; "Within two months of finishing its last billable project on June 25, 1991, Schiff had begun its adverse representation. The complaint was filed November 20, less than six months later. By comparison, the lawyer in Amalloy [Manoir-Electroalloys Corp. v. Amalloy Corp., 711 F. Supp. 188 (D.N.J. 1989)] began its adverse representation four years after last working for the client, yet the client was held to be a current client."; finding that Schiff had violated Rule 1.7, but not disqualifying the law firm; "The foregoing discussion should not be misunderstood to mean that this court does not take very seriously a lawyer's ethical responsibilities to avoid conflicts of interest. Schiff should not have agreed to bring this suit against Salomon Brothers. Rule 1.7 prohibited it from doing so. The court, however, does not believe that the costly sanction of disqualification should be automatic for a breach of even so serious an obligation as that imposed by Rule 1.7.").

Best Answer

The best answer is to this hypothetical is (B) NO (PROBABLY).

N 3/12

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Permitted Disclosure When Seeking Consents

Hypothetical 33

One of your partners just received a call from a potentially lucrative new client, which wants to hire your firm to pursue a trademark action against Acme (one of your firm's smaller clients). You are rarely involved in the "conflicts clearance" process, and you wonder what to do next.

(a) Without Acme's consent, may you tell the potential new client that your firm represents Acme?

(A) YES

(B) NO

(B) NO (PROBABLY)

(b) Without Acme's consent, may you tell the potential new client what matters your firm is handling for Acme?

(A) YES

(B) NO

(B) NO (PROBABLY)

(c) Without the potential new client's consent, may you ask Acme for a consent to represent the potential new client adverse to Acme in the trademark matter?

(A) YES

(B) NO

(B) NO

Analysis

(a)-(c) Despite nearly every law firm's need to clear conflicts when beginning representations (and sometimes during the course of representations), the ethics rules

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do not contain an explicit exception allowing the disclosure of protected client information when doing so.

The 1908 ABA Canons of Professional Ethics did not deal with this issue.

Perhaps the absence of any guidance reflected the unlikelihood of most lawyers facing conflicts of interest on a frequent basis.

The 1969 ABA Model Code of Professional Responsibility contained a fairly limited, but very logical, confidentiality duty. Absent client consent or some other exception, ABA Model Code DR 4-101(B) prohibited lawyers from knowingly disclosing client confidences or secrets. The ABA Model Code also defined those protected types of client information.

'Confidence' refers to information protected by the attorney- client privilege under applicable law, and 'secret' refers to other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client.

ABA Model Code of Professional Responsibility, DR 4-101(A).

In most situations, lawyers could freely make the type of disclosures required to clear conflicts. For instance, lawyers' disclosure of a client's identity or even the general nature of the lawyers' work for the client normally would not harm that client. On the other hand, the ABA Model Code prohibited lawyers from disclosing certain types of client information -- thus preventing lawyers from undertaking some work because they could not clear conflicts. For example, a lawyer representing a wife in secretly preparing to divorce her husband would have to decline the husband's request that the

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lawyer represent the husband in some unrelated business matter -- without explaining why (absent the wife's consent).

The ABA Code also provided some potentially helpful language buttressing lawyers' general freedom to disclose some protected client information when clearing conflicts on a day-to-day basis. Although the black letter ABA Model Code did not recognize implied client authorization for lawyers to do their job, an Ethical

Consideration acknowledged the obvious fact.

The obligation to protect confidences and secrets obviously does not preclude a lawyer from revealing information when his client consents after full disclosure, when necessary to perform his professional employment, when permitted by a Disciplinary Rule, or when required by law. Unless the client otherwise directs, a lawyer may disclose the affairs of his client to partners or associates of his firm. It is a matter of common knowledge that the normal operation of a law office exposes confidential professional information to non-lawyer employees of the office, particularly secretaries and those having access to the files; and this obligates a lawyer to exercise care in selecting and training his employees so that the sanctity of all confidences and secrets of his clients may be preserved.

ABA Model Code of Professional Responsibility, EC 4-2 (emphasis added).

In sharp contrast to the ABA Model Code and the Restatement, (discussed below) the ABA Model Rules contain an expansive definition of protected client information.

A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b).

ABA Model Rule 1.6(a) (emphasis added).

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A comment seems to extend the scope of the duty, and therefore the scope of

the prohibition, even further.

Paragraph (a) prohibits a lawyer from revealing information relating to the representation of a client. This prohibition also applies to disclosures by a lawyer that do not in themselves reveal protected information but could reasonably lead to the discovery of such information by a third person. A lawyer's use of a hypothetical to discuss issues relating to the representation is permissible so long as there is no reasonable likelihood that the listener will be able to ascertain the identity of the client or the situation involved.

ABA Model Rule 1.6 cmt. [4] (emphasis added).

Lawyers hoping to make disclosures required to clear conflicts in reliance on the

"impliedly authorized" exception face a comment that takes a very limited view of that

exception.

Except to the extent that the client's instructions or special circumstances limit that authority, a lawyer is impliedly authorized to make disclosures about a client when appropriate in carrying out the representation. In some situations, for example, a lawyer may be impliedly authorized to admit a fact that cannot properly be disputed or to make a disclosure that facilitates a satisfactory conclusion to a matter. Lawyers in a firm may, in the course of the firm's practice, disclose to each other information relating to a client of the firm, unless the client has instructed that particular information be confined to specified lawyers.

ABA Model Rule 1.6 cmt. [5] (emphasis added). Because nearly every lawyer must

clear conflicts, one might have expected that the ABA Model Rules would have used

that scenario as an example if it meant to approve such disclosure under the "impliedly

authorized" general provision.

And of course, disclosing an existing client's identity to a prospective new client to start the conflicts clearance process does not assist in "carrying out the

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representation" of the existing client. And disclosing the prospective client's identity to

an existing client does not meet that standard either -- because the representation has

not yet begun.

Thus, lawyers are left to rely on some unstated but universally recognized implied exception.

Interestingly, the ABA Ethics 20/20 Commission dealt with this very issue in

connection with law firms' lateral hiring. As a result of the Commission's work, the ABA

adopted a specific black letter rule dealing with that situation. ABA Model Rule

1.6(b)(7). However, the new rule and the accompanying comments deal only with

lateral hiring, and not the type of day-to-day conflicts clearing process that most law firms continuously undertake.

In some situations, lawyers will immediately know that they cannot undertake a representation because of an inherent conflict. For instance, lawyers would have to immediately decline a husband's request to represent him in planning a divorce if the law firm already represents the wife. In other situations, lawyers cannot possibly clear conflicts -- because making the necessary disclosure would prejudice the prospective new client. For instance, a company seeking to hire a law firm to represent it in initiating a hostile takeover effort would never consent to the law firm's disclosure of that still- secret plan to the target company which the law firm represents on unrelated matters.

However, in normal situations, lawyers routinely disclose protected client information to clear conflicts, although such disclosure seems to clearly violate the black letter ABA Model Rules. For instance, a lawyer asked to represent a new client in a fairly friendly transaction with Baker might find that her law firm already represents

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Baker in unrelated matters. Disclosing that fact to the potential new client violates the

black letter ABA Model Rule confidentiality provision. Yet, lawyers do that every day.

Such lawyers would then ask the new client if it wishes the lawyer to seek

consent from Baker to represent the new client in the transactional matter adverse to

Baker. The new client might decide to retain another lawyer without any "baggage," but

in non-litigation settings usually authorizes the lawyer to make such a disclosure and

seek Baker's consent. Ironically, giving the prospective new client this option actually

honors the confidentiality of its information more than the information of the lawyer's

existing client Baker -- whose identity the lawyer has already disclosed to the

prospective new client.

Alternatively, the lawyer could first turn to Baker, and disclose the request from

the prospective new client (without its consent). In doing so, the lawyer would be

violating his or her confidentiality duty to the prospective new client.

In the more frequent scenario, the lawyer then discloses to Baker the identity and

request of the prospective new client, and requests a consent to represent the new

client in the transactional matter adverse to Baker. At this point, both Baker and the

prospective new client know about each other's identity and the general nature of the

issue -- thanks to the lawyer's violation of his or her confidentiality duty to either Baker

or the prospective new client, or both.

Lawyers rarely if ever face disciplinary troubles by undertaking this everyday

process. This provides yet another example of how the ABA Model Rules have adopted a completely unworkable confidentiality duty.

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The Restatement takes the same basic approach to lawyers' disclosure of protected client information as the 1969 ABA Model Code -- generally permitting disclosure of protected client information if the disclosure would not prejudice the client.

The Restatement's main provision prohibiting disclosure of client confidential information begins with an emphasis on the disclosure's effect.

[T]he lawyer may not use or disclose confidential client information . . . if there is a reasonable prospect that doing so will adversely affect a material interest of the client or if the client has instructed the lawyer not to use or disclose such information

Restatement (Third) of Law Governing Lawyers § 60(1)(a) (2000) (emphasis added).

The Restatement's comment on that section repeats the basic theme.

A lawyer is prohibited from using or disclosing confidential client information if either of two conditions exists -- risk of harm to the client or client instruction.

Restatement (Third) of Law Governing Lawyers § 60 cmt. c (2000) (emphasis added).

The Restatement then explains the type of client harm a lawyer must consider in determining whether the lawyer may disclose client information.

What constitutes a reasonable prospect of adverse effect on a material client interest depends on the circumstances. Whether such a prospect exists must be judged from the perspective of a reasonable lawyer based on the specific context of the client matter. Some representations involve highly secret client information; others involve routine information as to which secrecy has little or no material importance. In most representations, some information will be more sensitive than other information. In all representations, the relevant inquiry is whether a lawyer of reasonable caution, considering only the client's objectives, would regard use or disclosure in the circumstances as creating an unreasonable risk of adverse effect either to those objectives or to other interests of the client. For example, a lawyer advising a client on tax planning for a gift that the client intends to keep anonymous from the donee

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would violate this Section if the lawyer revealed the client's purpose to the donee. If there is a reasonable ground to doubt whether use or disclosure of a client's confidential information would have the described effect, the lawyer should take reasonable steps to ascertain whether adverse effect would result, including consultation with the client when appropriate. Alternatively, the lawyer in such circumstances may obtain client consent to the use or disclosure . . . .

Adverse effects include all consequences that a lawyer of reasonable prudence would recognize as risking material frustration of the client's objectives in the representation or material misfortune, disadvantage, or other prejudice to a client in other respects, either during the course of the present representation or in the future. It includes consequences such as financial or physical harm and personal embarrassment that could be caused to a person of normal susceptibility and a normal interest in privacy.

Restatement (Third) of Law Governing Lawyers § 60 cmt. c(i) (2000) (emphasis added).

A Restatement provision addressed disclosure of protected client information in a

conflicts-clearing scenario. However, it does not provide a very helpful analysis.

Disclosing information about one client or prospective client to another is precluded if information necessary to be conveyed is confidential . . . . The affected clients may consent to disclosure . . . , but it also might be possible for the lawyer to explain the nature of undisclosed information in a manner that nonetheless provides an adequate basis for informed consent. If means of adequate disclosure are unavailable, consent to the conflict may not be obtained.

Restatement (Third) of Law Governing Lawyers § 122 cmt. c(i) (2000).

Best Answer

The best answer to (a) is (B) NO (PROBABLY); the best answer to (b) is (B) NO

(PROBABLY); the best answer to (c) is (B) NO.

B 12/14

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Revocability of Consents

Hypothetical 34

Before beginning to defend one of your clients in a lawsuit brought by another company that your firm represents on unrelated matters, you obtained both clients' consent. The litigation has now turned uglier than expected, and the client who is the plaintiff in the litigation just sent you a letter revoking its consent -- and insisting that you withdraw as counsel of record for the defendant.

Must you withdraw from the representation?

(A) YES

(B) NO

(B) NO (PROBABLY)

Analysis

Surprisingly, not many state courts or bars have analyzed the revocability of

consents.

It seems clear that a client may withdraw a consent at any time -- just as a client

may fire a lawyer at any time, for any reason.

However, it would seem unfair to the other client if such a revocation required a

lawyer's withdrawal from a representation that the lawyer began only in reliance upon

the consent.

There is support for treating a consent like other contracts, and refusing to allow

revocation as to matters on which the lawyer relied on the consent before undertaking.

The ABA Model Rules address this issue.

A client who has given consent to a conflict may revoke the consent and, like any other client, may terminate the lawyer's representation at any time. Whether revoking consent to the client's own representation precludes the lawyer from

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continuing to represent other clients depends on the circumstances, including the nature of the conflict, whether the client revoked consent because of a material change in circumstances, the reasonable expectations of the other client and whether material detriment to the other clients or the lawyer would result.

ABA Model Rule 1.7 cmt. [21].

The Restatement takes essentially the same approach.

A client who has given informed consent to an otherwise conflicted representation may at any time revoke the consent . . . . Revoking consent to the client's own representation, however, does not necessarily prevent the lawyer from continuing to represent other clients who had been jointly represented along with the revoking client. Whether the lawyer may continue the other representation depends on whether the client was justified in revoking the consent (such as because of a material change in the factual basis on which the client originally gave informed consent) and whether material detriment to the other client or lawyer would result. In addition, if the client had reserved the prerogative of revoking consent, that agreement controls the lawyer's subsequent ability to continue representation of other clients.

A material change in the factual basis on which the client originally gave informed consent can justify a client in withdrawing consent. For example, in the absence of an agreement to the contrary, the consent of a client to be represented concurrently with another . . . normally presupposes that the co-clients will not develop seriously antagonistic positions. If such antagonism develops, it might warrant revoking consent. If the conflict is subject to informed consent . . . , the lawyer must thereupon obtain renewed informed consent of the clients, now adequately informed of the change of circumstances. If the conflict is not consentable, or the lawyer cannot obtain informed consent from the other client or decides not to proceed with the representation, the lawyer must withdraw from representing all affected clients adverse to any former client in the matter . . . .

. . . .

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In the absence of valid reasons for a client's revocation of consent, the ability of the lawyer to continue representing other clients depends on whether material detriment to the other client or lawyer would result and, accordingly, whether the reasonable expectations of those persons would be defeated. Once the client or former client has given informed consent to a lawyer's representing another client, that other client as well as the lawyer might have acted in reliance on the consent. For example, the other client and the lawyer might already have invested time, money, and effort in the representation. The other client might already have disclosed confidential information and developed a relationship of trust and confidence with the lawyer. Or, a client relying on the consent might reasonably have elected to forgo opportunities to take other action.

Restatement (Third) of Law Governing Lawyers § 122 cmt. f (2000).

Several Restatement illustrations show how this basic principle works.

On Monday, Client A and Client B validly consent to being represented by Lawyer in the same matter despite a conflict of interest. On Wednesday, before either Client B or Lawyer has taken or forgone any significant action in reliance, Client A withdraws consent. Lawyer is no longer justified in continuing with the joint representation. Lawyer also may not continue to represent Client B alone without A's renewed informed consent to Lawyer's representation of B if doing so would violate other Sections of this Chapter, for example because A's and B's interests in the matter would be antagonistic or because Lawyer had learned confidential information from A relevant in the matter . . . . Similarly, if Client A on Wednesday did not unequivocally withdraw consent but stated to Lawyer that on further reflection Client A now had serious doubts about the wisdom of the joint representation, Lawyer could not reasonably take material steps in reliance on the consent. Before proceeding, Lawyer must clarify with Client A whether A indeed gives informed consent and whether the joint representation may thereby continue.

Restatement (Third) of Law Governing Lawyers § 122 cmt. f, illus. 5 (2000).

Clients A and B validly consent to Lawyer representing them jointly as co-defendants in a breach-of-contract action. On the eve of trial and after months of pretrial discovery on the

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part of all parties, Client A withdraws consent to the joint representation for reasons not justified by the conduct of Lawyer or Client B and insists that Lawyer cease representing Client B. At this point it would be difficult and expensive for Client B to find separate representation for the impending trial. Client A's withdrawal of consent is ineffective to prevent the continuing representation of B in the absence of compelling considerations such as harmful disloyalty by Lawyer.

Id. illus. 6.

Client A, who consulted Lawyer about a tax question, gave informed advance consent to Lawyer's representing any of Lawyer's other clients against Client A in matters unrelated to Client A's tax question. Client B, who had not theretofore been a client of Lawyer, wishes to retain Lawyer to file suit against Client A for personal injuries suffered in an automobile accident. After Lawyer informs Client B of the nature of Lawyer's work for Client A, and the nature and risks presented by any conflict that might be produced, Client B consents to the conflict of interest. After Lawyer has undertaken substantial work in preparation of Client B's case, Client A seeks to withdraw the advance consent for reasons not justified by the conduct of Lawyer or Client B. Even though Client A was Lawyer's client before Client B was a client, the material detriment to both Lawyer and Client B would render Client A's attempt to withdraw consent ineffective.

Id. illus. 7.

Bars tend to take the same approach.

• North Carolina LEO 2007-11 (7/13/07) (addressing the following question: "May a lawyer rely on a written waiver of conflict regarding the matter at hand signed, with informed consent, by two or more parties, after a subsequent, unforeseen falling out among those parties? (So that the lawyer is not required to relinquish representation of a long-term client/party to the original waiver due to one of the other party/signees revoking the waiver and objecting to the lawyer's continuing to represent the long-term client.)"; holding that "a lawyer is not required to withdraw from representing one client if the other client revokes consent without good reason" if the factors favor continued representation; "The consent agreement may specify the effect of one client's repudiation upon the other client's right to continued representation and the lawyer's right to continue to represent the other client.

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The DC Bar suggests the following language: 'You have the right to repudiate this waiver should you later decide that it is no longer in your interest. Should the conflict addressed by the waiver be in existence or contemplated at that time, however, and should we or the other client(s) involved have acted in reliance on the waiver, we will have the right -- and possibly the duty, under the applicable rules of professional conduct -- to withdraw from representing you and (if permitted by such rules) to continue representing the other involved client(s) even though the other representation may be adverse to you.'").

• District of Columbia LEO 317 (11/19/02) (analyzing other opinions and case law dealing with revoked consents, and finding that generally a revoked consent does not require a lawyer's withdrawal from the other representation; "If there has been detrimental reliance by the other client or the lawyer, the lawyer ordinarily should continue representing the other client."; "If there has been no detrimental reliance by the other client or the lawyer, the lawyer and both clients in effect are restored to their positions immediately prior to the grant of the waiver. Given that the lawyer's acceptance of, and beginning work for, the other client (and in many cases, the repudiating client as well) typically will constitute reliance, cases in this category presumably will be rare, particularly where more than a brief period has elapsed since the waiver was granted.").

Case law also supports this approach.

• DeMeo v. Provident Bank, 2008 Ohio 2936 (Ohio Ct. App. 2008) (holding that borrowers could not sue a law firm for malpractice in representing the borrowers in a loan transaction while simultaneously representing the lender in an unrelated transaction, because the borrowers had consented to the adversity).

• Discotrade Ltd. v. Wyeth-Ayerst International, Inc., 200 F. Supp. 2d 355, 359 (S.D.N.Y. 2002) (explaining that a client "had the power to withdraw the waiver after consulting with her colleagues, at least before [the law firm] filed a complaint on behalf of [the adversary]").

• Fisons Corp. v. Atochem North America, Inc., No. 90 Civ. 1080(JMC), 1990 U.S. Dist. LEXIS 15284, at *17 n.6 (S.D.N.Y. 1990) (explaining that the client was "estopped from revoking its consent due to [the other client's] reliance on the consent").

Best Answer

The best answer to this hypothetical is (B) NO (PROBABLY).

N 3/12

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Prospective Consents

Hypothetical 35

Your firm generally represents developers. A general contractor recently called one of your partners to see if she was available to handle some labor problems that the general contractor was facing. Your conflicts check reveals that you are not actively adverse to that general contractor, but you know that some of your developer clients deal with the general contractor, and you do not want to jeopardize your firm's opportunity to represent your large developer clients if they ever become adverse to that general contractor.

May you obtain a prospective consent from the general contractor that will allow you to represent your developer clients adverse to it in the future?

(A) YES

(B) NO

(A) YES (PROBABLY)

Analysis

No ethics rule automatically prohibits a client from granting a prospective consent. However, lawyers arranging or (especially) relying on such prospective consents must be very wary.

ABA Model Rules

A comment to ABA Model Rule 1.7 explains that

[t]he effectiveness of such [prospective] waivers is generally determined by the extent to which the client reasonably understands the material risks that the waiver entails. The more comprehensive the explanation of the types of future representations that might arise and the actual and reasonably foreseeable adverse consequences of those representations, the greater the likelihood that the client will have the requisite understanding. Thus, if the client agrees to consent to a particular type of conflict with which the client is already familiar, then the consent ordinarily will be effective with regard to that type of conflict. If the consent is

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general and open-ended, then the consent ordinarily will be ineffective, because it is not reasonably likely that the client will have understood the material risks involved. On the other hand, if the client is an experienced user of the legal services involved and is reasonably informed regarding the risk that a conflict may arise, such consent is more likely to be effective, particularly if, e.g., the client is independently represented by other counsel in giving consent and the consent is limited to future conflicts unrelated to the subject of the representation. In any case, advance consent cannot be effective if the circumstances that materialize in the future are such as would make the conflict nonconsentable under paragraph (b).

ABA Model Rule 1.7 cmt. [22].

The ABA added this comment in 2002, as part of the Ethics 2000 revisions. The new comment greatly expands the ABA's endorsement of prospective consents. In fact, the Ethics 2000 changes were so dramatic that the ABA took the fairly unusual step of withdrawing an earlier opinion that dealt with prospective consents. ABA LEO 436

(5/11/05) (withdrawing earlier ABA LEO 372 (4/16/93), because recent changes to

Model Rule 1.7 and especially Comment [22] allow "effective informed consent to a wider range of future conflicts" than permitted under the older version of the Model Rule; explaining that open-ended prospective consents are likely to be valid if (for instance) the client "has had the opportunity to be represented by independent counsel in relation to such consent and the consent is limited to matters not substantially related to the subject of the prior representation"; continuing to recognize that such prospective consents do not authorize the lawyer to "reveal or use confidential client information" absent an additional explicit consent).

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Restatement

The Restatement takes the same basic approach. Restatement (Third) of Law

Governing Lawyers, § 122 cmt. d (2000) warns that prospective consents are "subject to special scrutiny," but acknowledges that they are often appropriate.

A client's open-ended agreement to consent to all conflicts normally should be ineffective unless the client possesses sophistication in the matter in question and has had the opportunity to receive independent legal advice about the consent. . . . On the other hand, particularly in a continuing client-lawyer relationship in which the lawyer is expected to act on behalf of the client without a new engagement for each matter, the gains to both lawyer and client from a system of advance consent to defined future conflicts might be substantial. A client might, for example, give informed consent in advance to types of conflicts that are familiar to the client. Such an agreement could effectively protect the client's interest while assuring that the lawyer did not undertake a potentially disqualifying representation.

Restatement (Third) of Law Governing Lawyers, § 122 cmt. d (2000). A later comment implicitly deals with prospective consents in a discussion of the client's ability to revoke a consent.

The issue of withdrawal of consent typically arises when consent was given in general terms or long in advance, and a direct conflict thereafter arises between the parties. Courts generally hold that such changed circumstances permit the objecting client to withdraw consent.

Restatement (Third) of Law Governing Lawyers § 122 reporter's note cmt. f.

State Legal Ethics Opinions

Every bar that has addressed the issue of prospective consents has refused to adopt a per se prohibition of such consents.

• New York LEO 990 (11/12/13) ("A lawyer who regularly represents both Client A and Client B may represent Client B in negotiating a loan agreement in

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which Client B would lend money to Client A in accordance with Rule 1.7. Whether the lawyer may properly request the clients to waive conflicts that might arise in the future if Client A defaults on the loan and Client B wishes the lawyer to sue Client A on its behalf, is subject to the conditions set forth in Rule 1.7(b) and on the sophistication and experience of the clients. If the consent complies with Rule 1.7(b) and both clients consented to such adverse representation, the lawyer would not have to withdraw from representing Client A in unrelated matters. If Client B is willing to make the loan to Client A only if the lawyer uses knowledge from the representation of Client A to help Client B determine the nature and value of Client A's collateral for the loan, the lawyer may disclose such information only if Client A gives informed consent to the disclosure. The lawyer may accept stock in Client B as all or part of the fee in the lending matter as long as the lawyer determines that the fee is not excessive for the work performed by the lawyer, the terms of the transaction are fair and reasonable to Client B, Client B is advised in writing of the desirability of seeking the advice of independent legal counsel and is given a reasonable chance to do so, and Client B signs a writing that describes the transaction and the lawyer's role in the deal, including whether the lawyer is acting for the client in the acquisition of the stock. It is unlikely that acceptance of stock in Client B would require the lawyer to withdraw from representing Client A in matters unrelated to the loan."; noting the adversity involved in the representations; "In this case, representing Client B in lending money to Client A clearly would involve the lawyer in representing differing interests, since the interests of Client A and Client B in the negotiation of the loan agreement would be adverse. What is in the best interests of the lender are not necessarily in the best interests of the borrower."; noting the assumption that there would be a prospective consent; "The second question assumes that the clients will grant a waiver for the lawyer to represent Client B in negotiating the loan agreement and asks if the conflict waiver may also include a consent to represent Client B against Client A if the loan agreement should result in litigation."; "[T]he requested conflict waiver would not be open-ended. The circumstances anticipated -- that the lawyer would represent Client B in suing Client A for a default under the loan agreement (and in executing on the collateral for the loan) -- is quite specific. Compare N.Y. City 2006-1 (authorizing a law firm to request that the client waive future conflicts of interest, and discussing requests for open-ended waivers, where the lawyer may not be able to give appropriate disclosure of the implications, advantages and risks involved, so that the client can make an informed decision whether to consent). The inquirer characterizes Client A as a sophisticated business client who is an individual. It is not clear whether Client A will be independently advised in connection with the waiver. Such independent advice would clearly make any waiver less subject to challenge."; addressing the possibility that one or more of the clients will revoke their consent; "As Comment 21 to Rule 1.7 points out, the client (in this case, Client A) can also revoke a valid consent at any time, at least with

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respect to continued representation of Client A. Whether such revocation would also prevent the lawyer from representing Client B depends on the circumstances, including the nature of the conflict, whether the client revoked consent because of a material change in circumstances, the reasonable expectations of Client B, and whether material detriment to Client B would result."; noting the client confidential information issue; "The inquirer will want to clearly spell out to both Client A and Client B the extent to which confidential information of Client A will be shared, and the extent to which the lawyer has continuing obligations to inform Client B of changes in the value of the collateral.").

• New York City LEO 2008-2 (9/2008) (explaining that an in-house lawyer could obtain a prospective consent allowing the lawyer to take matters adverse to a former corporate affiliate; noting that the in-house lawyer might consider obtaining prospective consents from the various clients; "Careful drafting of the advance waiver will enhance the possibility that inside counsel will be able to continue to represent one or more clients after a conflict arises. In the context of a joint representation of a parent and an affiliate, the advance waiver should: [i]dentify for the clients the potential or existing conflicts with as much specificity as possible; [m]ake clear to the clients that the confidences and secrets of the affiliate will be shared with the parent; and [o]btain agreement from the affiliate that if inside counsel can no longer represent both parent and affiliate, inside counsel can continue to represent the parent irrespective of the confidences and secrets that the affiliate may have shared with counsel and irrespective of what work counsel may have performed for the affiliate.").

• New York LEO 823 (6/30/08) ("A lawyer cannot continue to represent joint clients in litigation if their strategies significantly diverge. The lawyer can continue to represent one of the joint clients in the litigation if the former client provides informed consent to the future representation and the lawyer can represent the current client zealously and competently. The lawyer is required to comply with the court's procedures for withdrawal.").

• Pennsylvania LEO 2006-200 (7/26/06) (addressing a lawyer's simultaneous representation of a corporation and one of its constituents; acknowledging the possibility that the clients could grant a prospective consent; "In seeking to obtain a prospective waiver from clients, it frequently will be difficult for an attorney to make 'full disclosure' to the same extent as may be made with a concurrent waiver. This difficulty arises because it may not be clear to the attorney at the outset of the representation which conflicts might later arise. To satisfy his obligation of full disclosure the lawyer seeking a prospective waiver should, at a minimum, advise the client of the types of possible future adverse representations that the lawyer envisions, as well as the types of matters that may present such conflicts. The lawyer also should disclose the measures that he will implement to protect the client or prospective client

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should a conflict arise."; offering several examples of future conflicts that might arise between a corporate client and an individual client; "The following examples illustrate situations when future conflicts may arise: (a) A substantial discrepancy could develop between the testimony of the corporate representatives and the employee. (b) Based on newly discovered evidence, the corporation could reevaluate its decision as to whether the employee's actions were within the scope of the employee's employment, or whether they constituted actual fraud, willful misconduct or actual malice. (c) The corporation could later seek to disavow responsibility for the employee's actions. (d) A disagreement could arise as to whether the employee's actions were contrary to applicable laws or the corporation's policies and procedures. (e) A substantial difference could arise between the employee and the corporation regarding their respective goals in the litigation, for example, on questions such as the possibility or desirability of settlement. (i) The employee may seek vindication of her reputation or a trial on the merits of the case while the corporation's interest may be more economically motivated and oriented toward obtaining a favorable settlement in lieu of a trial, or (ii) The employee may desire to avoid the publicity and potential embarrassment of a trial and, therefore, favor settlement while the corporation as a matter of business judgment may favor litigation as a means of deterring future unfounded claims. (f) The corporation and the employee may disagree with one another at some point over other aspects of legal tactics and strategy."; advising the lawyer to explain the nature of the joint representation to both clients; "Once it is decided that the lawyer will represent the corporation and the constituent, it is important to have a clear understanding with both clients about: (1) whether and what kind of confidential information will be shared; (2) who will control the privilege with respect to such information; (3) how the attorney-client privilege will operate in the event a dispute arises between the clients concerning the matter; and (4) whether the lawyer will continue to represent the corporation even if a conflict develops between the corporation and the constituent. We recommend that all such understandings be confirmed in writing.").

• New York City LEO 2006-1 (2/17/06) ("We conclude here that a law firm may ethically request an advance waiver that includes substantially related matters if the following conditions are met: (a) the client is sophisticated; (b) the waiver is not applied to opposite sides of the same litigation and opposite sides in a starkly disputed transactional matter; (c) the law firm is able to ensure that the confidences and secrets of one client are not shared with, or used for the advantage of, another client; (d) the conflict is consentable under the tests of DR 5-105(C); and (e) special consideration is given to the other factors described in Formal Opinion 2001-2."; explaining that Formal Opinion 2001-2 indicated that "[I]n a transactional setting in which the parties' interests are inherently antagonistic, such as when one party is a hostile bidder and the other an unwilling target in a corporate takeover, or when lawyers in the same

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law firm would be required to negotiate substantive business terms head-to- head, simultaneous representation generally will be ethically prohibited. But in transactional settings in which the adversity between clients is less stark, the application of DR 5-105 is more relaxed and nuanced. We also observed in Formal Opinion 2001-2 that many law firms service clients that insist the firm simultaneously represent multiple clients with differing interests in a single negotiated transaction – an observation that has even more force today.").

• Oregon LEO 2005-122 (8/2005) ("Nothing in Oregon RPC 1.7 prohibits a blanket or advance waiver from the State or from a nongovernment client as long as Lawyer adequately explains the material risks and available alternatives. See, e.g., ABA Formal Ethics Op No 05-436. Lawyer must be sensitive, however, to situations that were not contemplated in the original disclosure or that constitute nonwaivable conflicts. In the former situation, Lawyer would need to obtain the informed consent of each affected client as to the new conflict. In the latter situation, Lawyer would have to decline representation in the new matter that gives rise to the conflict. Oregon RPC 1.16(a)(1).").

• District of Columbia LEO 309 (9/20/01) ("Advance waivers of conflicts of interest are not prohibited by the Rules of Professional Conduct. Such waivers, however, must comply with the overarching requirement of informed consent. This means that the less specific the circumstances considered by the client and the less sophisticated the client, the less likely that an advance waiver will be valid. An advance waiver given by a client having independent counsel (in-house or outside) available to review such actions presumptively is valid, however, even if general in character. Regardless of whether reviewed by independent counsel, an advance waiver of conflicts will not be valid where the two matters are substantially related to one another."; noting that "the lawyer must make full disclosure of facts of which she is aware, and hence cannot seek a general waiver where she knows of a specific impending adversity unless that specific instance also is disclosed"; "Finally, any decision to act on the basis of an advance waiver should be informed by the lawyer's reasoned judgment. For example, a prudent lawyer ordinarily will not rely upon an advance waiver where the adversity will involve allegations of fraud against the other client or is a litigation in which the existence or fundamental health of the other client is at stake. In accordance with the foregoing, a client not independently represented by counsel (including in- house counsel) generally may waive conflicts of interest only where specific types of potentially adverse representations or specific types of adverse clients are identified in the waiver correspondence. A client that is independently represented by counsel generally may agree to waive such conflicts even where the specificity requirements set out in the preceding sentence are not satisfied."; noting the following prospective consent

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language, although not describing the text as "authoritative or exclusive": "As we have discussed, the firm represents many other companies and individuals. It is possible that during the time we are representing you, some of our current or future clients will have disputes or transactions with you. [For example, although we are representing you on ______, we have or may have clients whom we represent in connection with ______.] You agree that we may continue to represent, or undertake in the future to represent, existing or new clients in any matter, including litigation, even if the interests of such other clients in such other matters are directly adverse to yours, so long as those matters are not substantially related to our work for you.").

• California LEO 1989-115 (1989) (declining to find that all prospective consents are inappropriate; "Consequently, it is the opinion of the Committee that if, within the meaning of rule 3-310(F), the client is 'informed' of the potential risks that are foreseeable at the time of the consent, no Rule of Professional Conduct is violated by the attorney's requiring the client's advance waiver."; "[T]he nature of the subsequent conflict of interest may range from simply representing two clients in entirely unrelated matters to actually representing both side in the same dispute. While a court would doubtless preclude a lawyer from representing both sides simultaneously, the Committee believes that in such situation, if the original waiver was informed, local counsel could withdraw from its representation of lead counsel's client and continue to represent its own client even if otherwise confidential information would be used against lead counsel's client." (footnote omitted); "If the subsequent representation was unrelated to the original matter, the Committee believes that local counsel could continue its participation in the original matter at the same time as it is representing its own client in the unrelated matter."; "In summary, then, it is the opinion of the Committee that the execution of an advance waiver of conflict of interest and confidentiality protections is not per se improper; that to the extent that the waiver of confidentiality is 'informed,' it is valid; that to the extent that a potential client ripens into an actual conflict, the advance waiver may or may not be sufficient depending upon the degree of involvement and the nature of the subsequent conflict; that regardless of the validity of the waiver, it cannot be asserted as a defense to a disciplinary proceeding charging incompetent performance of legal services; and that under no circumstances may the agreement be used for the purposes of limiting the lawyer's civil liability for malpractice.").

• N.Y. County Law. Ass'n LEO 724 (undated) (finding that a lawyer might ethically seek a client's prospective consent; "The degree of disclosure that must be made in order for the client's or prospective client's consent to be 'informed' will also depend on other factors. For example, when the lawyer is seeking an advance waiver from a sophisticated client, such as a large corporation with in-house counsel, the adequacy of disclosure will be put to a

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less stringent test than if the client were a small business, an individual unsophisticated with respect to legal matters, a child or an incapacitated person."; "The Code does not require that the facts of each future adverse representation be known to the parties or described with precision in order for consent to be 'informed.' If such were the rule, no advance waiver would ever be enforceable; by their nature, such waivers include clients and claims that are not yet known. If the subsequent conflict should have been reasonably anticipated by the original client based on the disclosures made and the scope of the consent sought, we see no reason why the lawyer should not be permitted to rely on such consent under DR 5-105(C)."; "Notwithstanding that a lawyer may have obtained a client's consent to a future conflict, the lawyer must reassess the propriety of the adverse concurrent representation under the 'obviousness' test discussed above when the conflict actually arises. The lawyer must determine whether he or she can adequately represent the interests of all affected clients at that time. Of course, if the actual conflict that materializes is materially different than the conflict that has been waived, the lawyer may not rely on the consent previously obtained."; "A lawyer can seek and a client or prospective client can give an advance waiver with respect to conflicts of interest that may arise in the future. The lawyer must first evaluate whether the future representation is likely to give rise to a non-consentable conflict. If the lawyer determines that the prospective conflict is consentable, he or she can proceed to make full disclosure to the client or prospective client and obtain that person or entity's consent. The validity of the waiver will depend on the adequacy of disclosure given to the client or prospective client under the circumstances, taking into account the sophistication and capacity of the person or entity giving consent.").

Case Law

It is first worth noting that prospective consents must be truly prospective. Law firms cannot rely on a prospective consent if it has a current conflict.

• Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc., 2018 Cal. LEXIS 6689 (S.C. CA S232946, Aug. 30, 2018) (finding that the arbitration clause and the rest of a retainer agreement between the Sheppard Mullin firm and its client J-M Manufacturing was void, because Sheppard Mullin relied on reciprocal prospective consents in its retainer agreement with J-M Manufacturing and with another client, without telling either client that there was an actual conflict because of Sheppard, Mullin simultaneously represented a public entity plaintiff on unrelated matters while also representing J-M, a federal qui tam action brought on behalf of the other public entity Sheppard Mullin represented; nevertheless finding that Sheppard Mullin may be entitled to fees despite the unenforceable retainer agreement, and remanding to the trial court to determine if Sheppard Mullin could recover one million dollars in unpaid fees from J-M and could retain rather than have

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to return, two million dollars in fees that J-M had already paid the firm; “KRUGER, J.—A large law firm agreed to represent a manufacturing company in a federal qui tam action brought on behalf of a number of public entities. During the same time period, the law firm represented one of these public entities in matters unrelated to the qui tam suit. Both clients had executed engagement agreements that purported to waive all such conflicts of interest, current or future, but the agreements did not specifically refer to any conflict and the law firm did not tell either client about its representation of the other. This arrangement fell apart when the public entity discovered the conflict and successfully moved to have the firm disqualified in the qui tam action. A fight over the manufacturer’s outstanding law firm bills followed, and the dispute was sent to arbitration in accordance with an arbitration clause in the parties’ engagement agreement. The arbitrators ruled in the law firm’s favor and the superior court confirmed the award, but the Court of Appeal reversed. That court concluded that the matter should never have been arbitrated because, notwithstanding the broad conflict waiver in the engagement agreement, the law firm’s undisclosed conflict of interest violated rule 3-310(C)(3) of the Rules of Professional Conduct. This ethical violation, the court ruled, rendered the parties’ agreement, including the arbitration clause, unenforceable in its entirety. The Court of Appeal further held that the conflict of interest disentitled the law firm from receiving any compensation for the work it performed for the manufacturer while also representing the utility district in other matters. We agree with the Court of Appeal that, under the framework established in Loving & Evans v. Blick (1949) 33 Cal.2d 603 [204 P.2d 23], the law firm’s conflict of interest rendered the agreement with the manufacturer, including its arbitration clause, unenforceable as against public policy. Although the manufacturer signed a conflicts waiver, the waiver was not effective because the law firm failed to disclose a known conflict with a current client. But we conclude, contrary to the Court of Appeal, that the ethical violation does not categorically disentitle the law firm from recovering the value of the services it rendered to the manufacturer; whether principles of equity entitle the law firm to some measure of compensation is a matter for the trial court to address in the first instance.”; “The engagement agreement [with J-M] also contained a conflict waiver much like the one South Tahoe [other Sheppard Mullin client suing the qui tam action against J-M] had signed. The waiver provision provided: “Conflicts with Other Clients. Sheppard, Mullin, Richter & Hampton LLP has many attorneys and multiple offices. We may currently or in the future represent one or more other clients (including current, former, and future clients) in matters involving [J-M]. We undertake this engagement on the condition that we may represent another client in a matter in which we do not represent [J-M], even if the interests of the other client are adverse to [J-M] (including appearance on behalf of another client adverse to [J-M] in litigation or arbitration) and can also, if necessary, examine or cross-examine [J-M] personnel on behalf of that other client in such proceedings or in other proceedings to which [J-M] is not a party

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provided the other matter is not substantially related to our representation of [J-M] and in the course of representing [J-M] we have not obtained confidential information of [J-M] material to representation of the other client. By consenting to this arrangement, [J-M] is waiving our obligation of loyalty to it so long as we maintain confidentiality and adhere to the foregoing limitations. We seek this consent to allow our Firm to meet the needs of existing and future clients, to remain available to those other clients and to render legal services with vigor and competence. Also, if an attorney does not continue an engagement or must withdraw therefrom, the client may incur delay, prejudice or additional cost such as acquainting new counsel with the matter.”; “During its representation of J-M, Sheppard Mullin performed approximately 10,000 hours of work in the qui tam action and a related state court action. According to Sheppard Mullin Attorney Kreindler, the firm’s billings totaled more than $ 3 million, of which more than $1 million remained unpaid.”; “Because this case concerns the failure to disclose a current conflict, we have no occasion here to decide whether, or under what circumstances, a blanket advance waiver like the one at issue in Galderma would be permissible. We conclude, rather, that without full disclosure of existing conflicts known to the attorney, the client’s consent is not informed for purposes of our ethics rules. Sheppard Mullin failed to make such full disclosure here.”; “Because Sheppard Mullin’s ethical breach renders the engagement agreement unenforceable in its entirety, the rule of Loving & Evans means that Sheppard Mullin is not entitled to the benefit of the arbitrators’ decision awarding it unpaid contractual fees. The final question before us is whether Sheppard Mullin may receive any compensation for its services at all.”; “When a law firm seeks fees in quantum meruit that it is unable to recover under the contract because it has breached an ethical duty to its client, the burden of proof on these or other factors lies with the firm. To be entitled to a measure of recovery, the firm must show that the violation was neither willful nor egregious, and it must show that its conduct was not so potentially damaging to the client as to warrant a complete denial of compensation. And before the trial court may award compensation, it must be satisfied that the award does not undermine incentives for compliance with the Rules of Professional Conduct. For this reason, at least absent exceptional circumstances, the contractual fee will not serve as an appropriate measure of quantum meruit recovery. Although the law firm may be entitled to some compensation for its work, its ethical breach will ordinarily require it to relinquish some or all of the profits for which it negotiated.”).

Courts sometimes uphold the effectiveness of prospective consents that meet

the generally-accepted standard -- providing some specific description of the type of adversity that might develop.

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• Simpson Strong-Tie Co. v. Oz-Post Int’l, LLC, Case No, 3:18-cv-01188-WHO, 2018 U.S. Dist. LEXIS 140158, at *7, *31, *33, *33-34, *36-37, *37-39, *39, *40, *42, *43, *44, *49-50, *50, *50-51, *52-52, *53 (N.D. Cal. Aug. 17, 2018) (declining to disqualify Foley from adversity to a current client after the firm merged with the Gardere Wynne firm; pointing to prospective consent in the Foley retainer letter (and concluding that the prospective consent applied to an entity that was not named in the retainer letter, but which Foley clearly represented); “In June 2014, Simpson Manufacturing and Foley entered into an Engagement Letter Agreement (‘the Foley Engagement Agreement’) in which Foley agreed to provide ‘general labor and employment advice and counseling, including representing [Simpson Manufacturing] in labor negotiations. . . .’” (alterations in original); “Simpson Strong-Tie is not a party to the Foley Engagement Agreement, but Foley nonetheless represents it in labor and employment matters, including the ongoing matter before the DFEH.”; “Since Foley is concurrently representing Simpson in labor and employment matters and OZCO, its adversary in this case, there is a presumption that Foley’s duty of loyalty has been breached. . . . Foley aims to rebut the presumption by relying on the advanced waiver provision of the Foley Engagement Agreement, but Simpson Strong-Tie insists that Foley cannot enforce the agreement against it.”; “Simpson Strong-Tie emphasizes that it is not a party to the Foley Engagement Agreement. But both parties tacitly acknowledge that Foley’s work for Simpson Strong-Tie stems from the Foley Engagement Agreement.”; “Under these circumstances, the Engagement Agreement can be enforced against Simpson Strong-Tie. It is clearly benefiting from Foley’s representation under the Engagement Agreement and the individual that signed the Engagement Agreement on behalf of Simpson Manufacturing also serves as the chief financial officer for Simpson Strong-Tie. It must have been the intended beneficiary of the Engagement Agreement, as evidenced by Foley providing services for Simpson Strong-Tie and Simpson Manufacturing paying Simpson Strong- Tie’s legal bills (and because Simpson Strong-Tie would be the likely entity with domestic labor and employment matters). It aims to benefit from the Engagement Agreement, while ignoring the conditions of the agreement. I cannot endorse this strategic positioning. In this case, the advanced waiver can be enforced against it.” (internal citations omitted); “The advanced waiver from the Foley Engagement Agreement provides, '[Simpson Manufacturing] agrees that [Foley] may represent current or new clients in work directly adverse to [Simpson Manufacturing], and may be adverse to the business entities with which you are affiliated, provided such work is not substantially related to the Matter and [Foley] does not use any of [Simpson Manufacturing’s] confidential information in representing such clients. This consent includes our being counsel in litigation or other formal disputes adverse to [Simpson Manufacturing]. In addition, [Simpson Manufacturing] agrees that, even though [Foley] represents [Simpson Manufacturing] in this Matter, [Foley] may represent in the future other parties who are adversely

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involved in the Matter, or who may later become adversely involved in the Matter, as long as that representation of other parties is substantially unrelated to the Matter. By way of examples only, and assuming such representations are not substantially related to the Matter, we may represent one or more parties in bankruptcy cases that may have interests adverse to [Simpson Manufacturing], we may represent clients with regard to intellectual property rights that may be adverse to those of [Simpson Manufacturing], or we may represent clients in contract negotiations adverse to [Simpson Manufacturing]. [Foley] agrees that it will not use any of [Simpson Manufacturing’s] confidential information in representing such other clients and, when needed, we will establish an ethical wall to assure that confidential information is not exchanged between those working on the Matter and those working for such other clients.'“Foley Engagement Agreement § 4. Numerous courts have found similar ‘broad, general, and indefinite’ advance waivers insufficient disclosure to establish the client’s informed consent.” (alterations in original); “Foley acknowledges that the advance waiver is ‘unlimited in time’ and ‘broad in scope[,]’ but argues that it is ‘very specific’ because it states that the consent concerns ‘litigation or other formal disputes adverse to the Company’ and provides non-limiting examples such as ‘intellectual property rights[.]’ Opp'n at 6. It also insists that the scope is limited because any future adverse representation must be ‘substantially unrelated to the Matter.’ Courts have repeatedly rejected these arguments and labeled similarly worded advance waiver provisions ‘broad, general, and indefinite.’” (alterations in original); “Nonetheless, the provision does mention litigation, it explicitly lists intellectual property, and it is limited to ‘substantially unrelated’ matters.”; “Mackenzie [former Simpson VP] responded, ‘I don’t think that that would be an issue as long as no information is shared.’”; “The Mackenzie- David exchange has no bearing on the quality of the conflicts discussion concerning the Foley Engagement Agreement; Foley acknowledges that there is no evidence of any discussion. The Mackenzie-David exchange is, however, relevant to whether Gardere obtained a second waiver with respect to the underlying conflict prior to the merger with Foley.”; “The disclosure would have been especially warranted since Foley was not representing OZCO when Simpson Strong-Tie filed this action (prior to the merger), but was (and is) representing ‘Simpson’ in labor and employment matters. Under these circumstances, Foley should have made efforts to obtain a ‘second waiver.’”; “I am not convinced that the ethical standards, the preservation of public trust, and the integrity of the bar are truly at play in this case. A quick summary of the facts proves the point. Simpson’s relationship with Foley derives from its connection with a particular attorney, who moved to Foley from another firm."; “At the time Simpson Strong-Tie filed this action, Gardere already represented OZCO, but the merger had not yet occurred. Foley first made an appearance because OZCO needed California counsel to seek an extension of time to respond to the complaint. This is not a case as in Lennar where a firm ‘realized it faced a conflict but determined it would take on

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representation’ anyway, and then relied on an advance waiver to argue against disqualification. . . . The conflict arose as the result of a merger, not because Foley ‘accepted’ representation of an adverse client. Moreover, Gardere represented Simpson Manufacturing in the Condemnation Action under an agreement that contained an advance waiver provision, and arguably obtained a second waiver related to its potential representation of a party adverse to Simpson Strong-Tie and pertaining to intellectual property rights."; “In this case, where the actual conflict arose as the result of several moving pieces including a merger, I am not convinced that a legitimate threat to the integrity of the bar outweighs OZCO’s right to its chosen counsel and the resulting burden on it if this motion were to be granted.”; “Foley should have affirmatively sought a second waiver from Simpson Manufacturing following its merger with Gardere and appearance in this action, but that failure does not justify its disqualification.”; “Moreover, despite Simpson Strong-Tie’s protestations to the contrary, one could find that it brought this motion for strategic reasons. While there is admittedly no timing concern (such as the motion being raised at a late stage in the litigation, which is typically considered in assessing whether a disqualification motion has been filed for tactical reasons) there are several factors that suggest that Simpson is not truly concerned with a potential breach of the duty of loyalty. Even accepting the separate corporate personas despite the overlap in personnel, Simpson Manufacturing has known of the potential conflict since Ms. David’s January 2017 email, and Simpson Strong-Tie has known of Gardere’s representation of OZCO since the February 15, 2017 letter. Yet Simpson Strong-Tie first raised the potential conflict related to the Condemnation Action a year later in February 2018, after responding to certain issues on the merits.”; “At bottom, there is no indication that there has been any threat to Foley’s duty of loyalty here. The record evidence establishes that Simpson Strong-Tie continues to utilize Foley’s services in labor and employment matters, and has not expressed dissatisfaction with that representation. As OZCO’s counsel argued during the hearing, granting this motion will only result in harm to OZCO with no benefit to Simpson (except the tactical advantage of disqualifying OZCO’s long-time counsel.” (internal citation omitted)).

• Letter Order at 2, 4, Radici v. ICF Mercantile, LLC, Civ. A. No. 2:14-cv-07133 (SRC)(CLW) (D.N.J. Mar. 2, 2016), ECF No. 39 (finding that the Day Pitney law firm's prospective consent language when it began to jointly represent plaintiff and defendant prevented the plaintiff from seeking the law firm's disqualification when it later became adverse to the plaintiff in an unrelated matter; "Day Pitney presented Ronner and Radici with a letter seeking their joint consent and waiver of potential conflicts of interest (the 'Waiver Letter'). That letter, in sum and substance, communicated to the clients that Day Pitney would concurrently represent Radici in the Investor Visa application process while advising Ronner in his negotiations with Radici relating to ICF.

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The letter further communicates that in the event of a dispute between Radici, ICF, and Ronner, Day Pitney would cease its representation of Radici in conjunction with the Investor Visa application, and would represent ICF and Ronner in connection with a dispute. Lastly, and perhaps most importantly, the letter specifically states: '[Radici] will not use [Day Pitney's] representation of him in the Visa Application Matter nor this consent and waiver as a basis on which to disqualify [Day Pitney] from representing ICF or Mr. Ronner on the Member matters, including any litigation that may arise between ICF and/or Mr. Ronner, on one hand, and Mr. Radici on the other.'" (alterations in original) (internal citations omitted); "Day Pitney relied on that waiver in accepting Radici's matter in the first instance. Had Radici refused to sign that the Waiver Letter, then Day Pitney could have had the opportunity to refuse his matter so as to protect their representation of ICF and Ronner. To allow Radici to now claim, years later, that he did not know the effect of the document he signed, is more prejudicial to Defendants. Thus, the Court finds that Radici's signed waiver as to Day Pitney's concurrent representation of Ronner, ICF, and Radici during the application process for the U.S. Investor Visa, bars Radici from now claiming that Day Pitney must be disqualified in this action." (emphasis added)).

• McKesson Info. Solutions Inc. v. Duane Morris LLP, Civ. No. 2006CV121110 (Fulton County (Ga.) Super. Ct. Mar. 6, 2007) (in earlier order disqualifying Duane Morris, addressing McKesson's "Verified Complaint for Emergency Injunctive Relief and Disqualification of Duane Morris LLP" ("Nov. 7, 2006 Order"); explaining that Duane Morris was representing two individuals in arbitration against McKesson while simultaneously representing two of McKesson's sister subsidiaries in a separate action in Pennsylvania (Nov. 7, 2006 Order); noting that Duane Morris undertook Pennsylvania representation of the two other McKesson subsidiaries as local counsel pursuant to an April 27, 2006 engagement letter which "attempts to distinguish between McKesson Corporation's entities and contains a waiver of future conflicts" (Nov. 7, 2006 Order at 2); noting that Duane Morris's adversary in the arbitration and one of its clients in the Pennsylvania bankruptcy action were part of the same segment of the overall McKesson corporate family, and among other things reported to the same law department (Nov. 7, 2006 Order); rejecting Duane Morris's argument that the McKesson entities are separate for conflicts purposes (Nov. 7, 2006 Order); holding that Georgia's ethics rules apply because Duane Morris's lawyers' conduct is occurring in Georgia (Nov. 7, 2006 Order); and quoting Duane Morris's engagement letter signed by McKesson in the Pennsylvania bankruptcy action: "Given the scope of our business and the scope of our client representations through our various offices in the United States and abroad, it is possible that some of our present or future clients will have matters adverse to McKesson while we are representing McKesson. We understand that McKesson has no objection to our representation of parties

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with interests adverse to McKesson and waive any actual or potential conflict of interest as long as those other engagements are not substantially related to our services to McKesson. We agree, however, that McKesson's consent to, and waiver of, such representation shall not apply in any instance where, as a result of our representation of McKesson, we have obtained proprietary or other confidential information of a non-public nature, that, if known to such other client, could be used in any such other matter by such client to McKesson's material disadvantage or potential material disadvantage. By agreeing to this waiver of any claim of conflicts as to matters unrelated to the subject matter of our services to McKesson, McKesson also agrees that we are not obligated to notify McKesson when we undertake such a matter that may be adverse to McKesson." (Nov. 7, 2006 Order at 10-11); holding that in this case the consent was inadequate and invalid as a matter of Georgia law: "In this case, Defendant's engagement letter does not refer to any particular parties or circumstances under which adverse representation would be undertaken. As such, the Court finds that MMM and MAI [Duane Morris's clients in the Pennsylvania bankruptcy action] could not have reasonably anticipated that Defendant would actually consider representation of the Smiths [Duane Morris's clients in the Georgia action against the other McKesson subsidiary] in the concurrent action where the adverse party is attacking McKesson Corporation products and accusing it of fraudulent conduct. Courts must ensure that the trust and loyalty owed by lawyers to their clients are not compromised." (Nov. 7, 2006 Order at 11); the November 7, 2006 Order was later vacated after Duane Morris's representation of the McKesson subsidiaries in the Pennsylvania bankruptcy case ended, and Duane Morris sent a letter to McKesson's lawyer in the Pennsylvania bankruptcy matter indicating that Duane Morris "intended to withdraw as counsel for MMM and MAI" in the Pennsylvania bankruptcy matter (Mar. 6, 2007 Order on Motion for New Trial and to Vacate the Permanent Injunction and To Dismiss on the Grounds that the Controversy is Now Moot, slip op. at 3-4); also noting that Duane Morris had moved to withdraw as counsel for the McKesson entities in the Pennsylvania bankruptcy matter, which was granted by the bankruptcy court (slip op. at 4); rejecting McKesson's reliance on the "hot potato" rule, based on its argument that Duane Morris's withdrawal as counsel occurred during the pendency of the arbitration in Georgia (slip op. at 5); holding that Duane Morris "did not improperly terminate or prematurely abandon its attorney-client relations" with the McKesson subsidiaries it was representing in the Pennsylvania bankruptcy proceeding (slip op. at 6); noting that neither of the McKesson entities or the chief lawyer representing them in the Pennsylvania bankruptcy matter objected to Duane Morris's motion to withdraw, which the bankruptcy court granted).

• Visa U.S.A., Inc. v. First Data Corp., 241 F. Supp. 2d 1100, 1102-03 (N.D. Cal. 2003) (upholding the following prospective consent in a retainer letter

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between the Heller Ehrman Law Firm and First Data: "'Our engagement by you is also understood as entailing your consent to our representation of our other present or future clients in "transactions," including litigation in which we have not been engaged to represent you and in which you have other counsel, and in which one of our other clients would be adverse to you in matters unrelated to those that we are handling for you. In this regard, we discussed [Heller's] past and on-going representation of Visa U.S.A. and Visa International (the latter mainly with respect to trademarks) (collectively, "Visa") in matters which are not currently adverse to First Data. Moreover, as we discussed, we are not aware of any current adversity between Visa and First Data. Given the nature of our relationship with Visa, however, we discussed the need for the firm to preserve its ability to represent Visa on matters which may arise in the future including matters adverse to First Data, provided that we would only undertake such representation of Visa under circumstances in which we do not possess confidential information of yours relating to the transaction, and we would staff such a project with one or more attorneys who are not engaged in your representation. In such circumstances, the attorneys in the two matters would be subject to an ethical wall, screening them from communicating from [sic] each other regarding their respective engagements. We understand that you do consent to our representation of Visa and our other clients under those circumstances.'"; noting that First Data moved to disqualify Heller Ehrman from representing Visa in an action against First Data; approving the prospective consent and denying First Data's motion to disqualify -- because the prospective consent provided a specific enough disclosure of the possible adversity and thus resulted in a knowing consent).

• Elonex I.P. Holdings, Ltd. v. Apple Computer, Inc., 142 F. Supp. 2d 579, 582, 582-83 (D. Del. 2001) (denying Apple's motion to disqualify the Dechert Price firm; "As a general matter, a client may expressly or impliedly waive his objection and consent to an adverse representation. Given the facts in the record, Apple cannot reasonably or credibly maintain that Albert P. Cefalo, in-house counsel for Apple, believed that he was merely granting a transactional waiver."; "Given that Cefalo, who was the Director of Intellectual Property at Apple, knew about the possibility of suit from Elonex, his discussion with Tim Blank of Dechert in Boston was reasonably sufficient, or should have been sufficient, to cause Apple to appreciate the significance of any potential conflicts. Therefore, considering that Elonex had not yet filed a suit, the court concludes that Dechert had provided Apple with sufficient information about the possible conflict. The facts in the record suggest that Dechert obtained a prospective waiver from Apple. The ABA has affirmed the validity of the prospective waivers. . . . A prospective waiver should identify the potential opposing party, the nature of the likely subject matter in dispute, and permit the client to appreciate the potential effect of the waiver. . . . Therefore, considering that Blank identified the possibility of this patent

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infringement suit, Cefalo was already aware of the possibility of suit, and the two discussed methods of dealing with the conflict, the court finds that Blank sufficiently explained the conflict in order to obtain a prospective waiver from Apple.").

• General Cigar Holdings, Inc. v. Altadis, S.A., 144 F. Supp. 2d 1334, 1336, 1339 (S.D. Fla. 2001) (enforcing a prospective consent obtained by Latham & Watkins; explaining that the client signed an engagement letter with the following provision: "'Our firm has in the past and will continue to represent clients listed on the attached Exhibit A (each an 'Exhibit A Client') in matters not substantially related to this engagement. Accordingly, each Client agrees to waive any objection, based upon this engagement, to any current or future representation by the firm of any of the Exhibit A Clients, its respective parent, subsidiaries and affiliates in any matter not substantially related to this representation. Of course, we will not accept any representation that is adverse to you in this matter.'"; finding the prospective consent enforceable; "The engagement letter in the instant case was reviewed by outside counsel and the respective representatives of the corporations. As in Fisons [Fisons Corp. v. Atochem North America, Inc., No. 90 Civ. 1080 (JMC), 1990 U.S. Dist. LEXIS 15284 (S.D.N.Y. Nov. 14, 1990)], it is clear that advance consent was obtained from knowledgeable and sophisticated parties. There is no dispute that the predecessors of Altadis, U.S.A. were aware of the Latham attorneys' relationship with General Cigar. Allowing for advance, informed consent has significant advantages to both clients and lawyers alike, especially where large firms and sophisticated clients are involved. While the engagement letter could have been more explicit, under the circumstances, it represents informed consent for potential adverse actions.").

In contrast, some courts reject the effectiveness of prospective consents that they consider too broad.

• Southern Visions, LLP v. Red Diamond, Inc., 370 F. Supp. 3d 1314, 1320, 1324, 1325, 1326,1326-27, 1328.1329.1330, 1335, 1336 (N.D. Ala. 2019) (disqualifying the law firm of Bradley Arant from representing a client adverse to its former client Red Diamond, three days after accepting the representation of Southern Visions adverse to Red Diamond; holding that Bradley Arant’s prospective consent language in its Red Diamond engagement letter was insufficient to allow such adversity; “At the outset of most of the engagements described above, Red Diamond signed an engagement letter purporting to provide Red Diamond’s prospective consent to Bradley undertaking future representations of other clients ‘in any matter that is not substantially related’ to Bradley’s work for Red Diamond, ‘even if the interests of such clients in those other matters are directly adverse’ to Red Diamond, and ‘even if such representations would be simultaneous.’ (Doc. #

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76-1 at 10, 15, 26). Bradley did not advise Red Diamond to seek independent legal counsel about these advance conflict waivers, and Red Diamond did not seek independent counsel about the waivers. (Doc. # 76-1 at 1-4).”; explaining that Southern Visions retained Bradley Arant to be adverse to Red Diamond; that Arant began working on the Southern Visions matter three days before withdrawing from its representation of Red Diamond, and that Bradley Arant lawyers appeared adverse to Red Diamond just 43 minutes after the withdrawal; “The facts show Bradley violated the plain language of Rule 1.7(a). It is undisputed that Bradley began representing Southern Visions in this matter on December 23, 2018—the day its business review committee approved the representation and Bradley lawyers began billing time on the matter. (Doc. # 92-1 at ¶ 8). At that time, Bradley still represented Red Diamond in at least three pending debt collection matters. In fact, Bradley did not withdraw from representing Red Diamond in those matters until December 26, 2018—three days after it began working on this lawsuit for Southern Visions and less than one hour before one of its lawyers appeared in this case. (Doc. # 85-1 at 7-8). Thus, Bradley was representing two clients directly opposed to one another in pending litigation for three days.”; “Bradley claims it complied with Rule 1.7(a)’s requirement of consent after consultation by having Red Diamond sign engagement letters at the outset of its prior representations of Red Diamond that contained advance conflict waivers. The advance waivers state that Red Diamond agreed that Bradley could undertake future representations of other clients ‘in any matter that is not substantially related’ to Bradley’s work for Red Diamond, ‘even if the interests of such clients in those other matters are directly adverse’ to Red Diamond, and ‘even if such representations would be simultaneous.’ . . . Notwithstanding their broad language, the court does not believe these advance waivers permitted Bradley to undertake the Southern Visions representation, for two reasons: (1) Red Diamond never gave its consent ‘after consultation’ to the Southern Visions representation, through the advance waivers or otherwise; and (2) even if Red Diamond had consented to Bradley’s representation of Southern Visions, it unequivocally revoked that consent before Bradley began representing Southern Visions.”; “Turning first to the advance waivers, a number of courts have held that broad, open-ended advance conflict waivers like those Red Diamond signed are ineffective to provide consent to future conflicts.”; “Another way of stating this principle is to say that a court will not lightly conclude that a client’s advance conflict waiver was truly intended to permit the law firm to later sue that current client on behalf of another—not without clear evidence of such intent. The rationale behind this clear-statement rule is the idea that some conflicts -- like suing a current client -- so break the bonds of trust between client and lawyer that it is highly unlikely a client would knowingly and voluntarily consent in advance to such a conflict.”; “In light of these authorities, the court concludes that Red Diamond did not effectively consent after consultation to Bradley representing Southern Visions in this lawsuit through the advance waivers it signed. To be

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clear, the court stops short of holding that advance conflict waivers are never effective to provide the consent ‘after consultation’ that Rule 1.7(a) requires. Had Bradley’s advance waivers used specific language to identify the types of potential future conflicts it had in view, and were there evidence in the record showing that Red Diamond had been fully counseled about the matter before signing the waiver and perhaps even advised to seek independent legal counsel, a different result might well obtain. . . . But, given the advance waivers’ lack of specificity, the lack of evidence that Red Diamond was fully counseled regarding their import, and especially the fact that directly adverse litigation between two direct competitors like Red Diamond and Southern Visions is an extremely serious conflict most clients would be unwilling to waive, the court is unable to conclude that the advance waivers, standing alone, provided Red Diamond’s effective consent to this conflict.”; “Second, even if Red Diamond were deemed to have consented to Bradley’s representation of Southern Visions through the advance waivers or otherwise, it unequivocally revoked that consent on December 21, 2018, before Bradley began representing Southern Visions. (Doc. # 76-1 at 33-34). Bradley concedes that Red Diamond was absolutely within its rights to revoke any consent it had previously given to Bradley’s conflicting representation of Southern Visions.”; explaining that Bradley Arant could have avoided the conflict by withdrawing from the Red Diamond representation before accepting the Southern Visions representation; not addressing the generally accepted ‘hot potato’ rule prohibiting such withdrawal; “In a situation like the one Bradley found itself in -- with a new, potentially lucrative client asking it to sue one of its current, albeit minor, clients -- what should a law firm do? The Alabama Rules of Professional Conduct provide clear guidance. Where ‘[a]n impermissible conflict of interest’ exists ‘before representation is undertaken,’ ‘the representation should be declined.’ Ala. R. Prof. Conduct 1.7, cmt. Thus, faced with a concurrent conflict under Rule 1.7(a), Bradley had two permissible options under the Rules. Under Rule 1.16(a)(1), Bradley could have declined to represent Southern Visions because the representation would ‘result in violation of the Rules of Professional Conduct.’ Alternatively, under Rule 1.16(b), Bradley could have withdrawn from representing Red Diamond before accepting the Southern Visions representation—if it could do so ‘without material adverse effect’ on Red Diamond’s interests, or if other good cause for withdrawal existed. After withdrawing from representation of Red Diamond, Bradley would have been free to represent Southern Visions if not prohibited by Rule 1.9 or another rule. What Bradley could not do is exactly what it did: decide to court Southern Visions as a potential client on December 21, 2018, then accept representation of Southern Visions on December 23 (all without consulting or obtaining consent from its directly adverse current client), and then, once the new client was landed, begin work for it immediately before finally dropping Red Diamond three days later.” (alteration in original); “One of those additional duties is a duty of loyalty that precludes lawyers from suing a current client—even if the lawyer thinks the

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client has breached a term of their employment contract. The court understands that such a duty of loyalty does not prevent the lawyer from terminating the attorney-client relationship -- if it can be done in a manner consistent with Rule 1.16(b) -- and then suing the (now) former client (if not prohibited by other relevant ethical rules). But the duty of loyalty does prevent a lawyer from treating a current client like a former client before formally ending the attorney-client relationship, simply because the lawyer believes the client breached their contractual agreement. Yet, that is precisely what occurred here.”; “In short, Eleventh Circuit case law imposes a straight- forward standard for evaluating motions to disqualify like Red Diamond’s: disqualification is appropriate if the district court finds a violation of a specific rule of professional conduct, of which counsel had notice. . . . On the other hand, disqualification is not appropriate if the alleged ethical violation merely involves the transgression of some transcendental code of conduct that exists only in the subjective opinion of the court. . . . Here, the ethical violation on which Red Diamond’s disqualification motion is based is clearly of the former type, not the latter, and disqualification is therefore appropriate.”; explaining that federal courts disagree about what approach to take to disqualification; “Some federal courts have held that when a party’s counsel violates Rule 1.7(a), especially by suing a current client, counsel should be automatically disqualified.”; “The court finds the rationale supporting a per se rule of disqualification for violations of Rule 1.7(a) persuasive, particularly in cases (like this one) where the law firm created the conflict by its own actions and could easily have avoided the conflict. But the court stops short of adopting that rule. Indeed, it need not decide whether a per se rule is appropriate because, as explained below, disqualification is still warranted here even under a more lenient ʽrule of reasonʽ approach.”; “Some federal courts have held that disqualification is not always an appropriate sanction for violations of Rule 1.7(a).”; “The court’s review of the federal case law on the issue confirms that the flexible ‘rule of reason’ approach to deciding whether a Rule 1.7(a) violation warrants disqualification appears to be the minority approach. Still, even under this more lenient minority approach, disqualification is clearly warranted on the facts of this case.” (emphases added)).

• In re Relativity Media, LLC, Ch. 11 Case No. 18-11358 (MEW), 2018 Bankr. LEXIS 2037, at *4, *15, *17-18, *18 (Bankr. S.D.N.Y. July 6, 2018) (disqualifying Winston & Strawn from adversity to its client Netflix, and finding that the firm's prospective consent was ineffective; “Winston & Strawn has argued that Nexflix agreed in advance to waive conflicts and to permit Winston & Strawn to represent other clients in unrelated litigation and transactional matters that might be adverse to Nexflix. It has also argued that it has withdrawn from its representation of Nexflix in Delaware, and that I should therefore consider Netflix, at this point, to be just a former client of Winston & Strawn.”; “Netflix has argued that it did not agree to an advance waiver with respect to the Realtime litigation in Delaware, and that in any

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event such advance waivers are unenforceable under California law.”; “As to the waiver: Winston & Strawn has argued that Netflix waived conflicts generally in a series of engagement letters and emails. More particularly, Winston & Strawn has provided a redacted copy of a letter dated February 26, 2012, under which Netflix retained Winston & Strawn in connection with a particular matter. The identity of that matter is not clear from the redacted letter, though there seems to be no dispute that it has ended. The letter stated that, 'as a condition to Winston & Strawn LLP's undertaking to represent Netflix, Inc. in this matter,' Netflix agreed that Winston & Strawn could, 'in the future,' represent other clients 'in any matter, including but not limited to litigation, directly adverse to Netflix, Inc. which is not the same as or substantially related to this matter,' and that Netflix thereby waived any conflicts of interest from such representations.”; “I agree with Netflix that this correspondence is not effective to constitute an advance waiver of conflicts that binds Netflix today. The letters from 2012 and 2015 were expressly in consideration of Winston & Strawn's agreement to represent Netflix in the particular matters that were the subject of those letters. No similar agreement was ever signed as to the Delaware patent litigation. It is not fair to interpret the 2012 and 2015 letters as though they are waivers, not only by virtue of the specific matters that were the subjects of those letters, but also were waivers by virtue of any other matters for which Winston & Strawn might be hired by Netflix in the future. The letters could have also stated if that was the intent, but they did not. Instead, they said quite clearly that the waivers were in consideration of particular matters that apparently have all ended by now. The fact that a separate waiver was retained in connection with the 2015 retention reinforces the idea that the waiver was obtained with respect to each specific representation and does not constitute a general agreement to be applied to all future work, even if additional projects are taken on for Netflix.”; “Even if arguments could be made to the contrary, Netflix is correct in pointing out that waivers of conflicts are only effective to the extent they are specific and are provided with informed consent. I find that there is nothing in the 2012 and 2015 letters and the 2017 and 2018 email correspondence about the new Delaware litigation that is sufficiently clear and specific to constitute a waiver of the conflicts that are raised by Winston & Strawn's representation of the Relativity debtors in their present disputes with Netflix.” (emphases added)).

• Hyrdogen Master Rights, Ltd. v. Weston, Civ. No. 16-474-RGA, 2016 U.S. Dist. LEXIS 177230, at *18-19, *19-20 (D. Del. Dec. 22, 2016) (holding that an in-house lawyer represented partners in a partnership rather than the entity; also holding that the prospective consent obtained by the lawyer was too open-ended and therefore was ineffective; "Under Model Rule 1.9, a lawyer may represent a current client in a substantially related matter if 'the former client gives informed consent, confirmed in writing.' Plaintiffs argue that Coats gave informed consent in advance by signing the engagement

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letter which states: 'Each of your hereby waive forever each and every conflict of interest, which now exists, due to, or hereafter may arise out of, this firm's representation of the Entity and any Owners (or affiliates).'"; "Here, Coats gave general and open-ended consent. Although Coats may be an experienced user of the legal services involved, particularly considering that he is the one who found Movius and recommended him to the other partners, Coats was not independently represented when he gave his advance consent and the advance consent was not limited to future conflicts unrelated to the subject of the representation. Indeed, the court has already concluded that this matter and the prior matter are substantially related. For all of these reasons, the court finds that Coats did not give informed consent under Model Rule 1.9. Accordingly, Movius and McDonald Hopkins are disqualified from representing Plaintiffs in this matter." (emphasis added)).

• Lennar Mare Island, LLC v. Steadfast Ins. Co., 105 F. Supp. 3d 1100, 1116 n.6, 1116, 1117, 1117-18 & n.8 (E.D. Cal. 2015) (disqualifying Hogan Lovells from representing its client adverse to counterclaim defendant CH2M Hill, because Hogan Lovells also represented that company's parent; also rejecting Hogan Lovells's argument that its retainer letter contained a prospective consent allowing it to be adverse to its clients parent -- because the prospective consent was too broad; analyzing various prospective consents; noting that "[i]n Concat [Concat LP v. Unilever, PLC, 350 F. Supp. 2d 796, 801-02 (N.D. Cal. 2004)], the waiver provided, 'Morgan, Lewis & Bockius is a large law firm, and we represent many other companies and individuals. It is possible that some of our present or future clients will have disputes or other dealings with you during the time that we represent you. Accordingly, as a condition of our undertaking of this matter for you, you agree that Morgan, Lewis & Bockius may continue to represent, or may undertake in the future to represent, existing or new clients in any matter, including litigation, that is not substantially related to our work for you, even if the interests of such clients in those other matters are directly adverse to you. Further, you agree in light of its general consent to such unrelated conflicting representations, Morgan, Lewis & Bockius will not be required to notify you of each such representation as it arises. We agree, however, that your prospective consent to conflicting representations contained in the preceding sentence shall not apply in any instance where, as the result of our representation of you, we have obtained confidential information of a non- public nature that, if known to another client of ours, could be used to your material disadvantage in a matter in which we represent, or in the future are asked to undertake representation of, that client.'"; "It found the waiver in question nonspecific and overbroad both in its scope and subject matter and noted the record lacked evidence of the law firm's discussion of the waiver with its client. . . . Considering the fact that the law firm did not seek to represent an adverse client in a substantially related matter and that the client was a sophisticated user of legal services, the court nonetheless concluded

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the waiver was not fully informed. . . . The court also expressed its disapproval of the law firm's decision not to immediately inform its clients when it became aware of its concurrent obligations."; "Recently, the Central District has rejected an open-ended waiver, also similar to the one in this case. See Western Sugar [Coop. v. Archer-Daniels-Midland Co., 98 F.Supp. 3d 1076, 1082-83 (C.D. Cal. 2015)]. It applied the factors listed in Visa [Visa U.S.A., Inc. v. First Data Corp., 241 F. Supp. 2d 1100 (N.D. Cal. 2003)] and Concat and concluded the waiver was too open-ended, non-specific, and lacked identification of potentially adverse clients, the types of conflicts, or the types of possible future representations. . . . It distinguished the Visa waiver, which identified a specific adverse client, 'disclosed as fully as possible the nature of any potential conflict that could arise between the parties,' and 'specifically contemplated the firm's representation of Visa against First Data in litigation matters.' . . . (also citing Zador [Corp. v Kwan], 31 Cal. App. 4th [1285,] 1302 [(Cal. Ct. App. 1995)], for the proposition that a waiver may be enforceable if it names the prospective adverse client). The court in Western Sugar quoted a declaration submitted by the client's general counsel, who stated his attorneys had not discussed the prospective waiver and explained his understanding that a further disclosure and request for a waiver was necessary."; "The Northern District of Texas recently applied ABA Formal Opinion 05-436 and Model Rule 1.7 to conclude that an advance waiver similar to the waiver here and in Concat was informed and effective. The waiver in Galderma Labs provided in pertinent part: 'We understand and agree that this is not an exclusive agreement, and you are free to retain any other counsel of your choosing. We recognize that we shall be disqualified from representing any other client with interest materially and directly adverse to yours (i) in any matter in which is substantially related to our representation of you and (ii) with respect to any matter where there is a reasonable probability that confidential information you furnished to us could be used to your disadvantage. You understand and agree that, with those exceptions, we are free to represent other clients, including clients whose interests may conflict with ours in litigation, business transactions, or other legal matters. You agree that our representing you in this matter will not prevent or disqualify us from representing clients adverse to you in other matters and that you consent in advance to our undertaking such adverse representations.' [Galderma Labs., L.P. v. Activis Mid Atl. LLC, 927 F. Supp. 2d 390, 402 (N.D. Tex. 2013).] It cited Visa and Concat, but disagreed with their reasoning, concluding the national standard had evolved to embrace a broader conception of 'informed consent.'").

• W. Sugar Coop. v. Archer-Daniels-Midland Co., 98 F. Supp. 3d 1074, 1083, 1084 (C.D. Cal. 2015) (disqualifying Squire Sanders based on its merger with Patton Boggs, which created the conflict of interest; rejecting the firm's argument that the Patton Boggs retainer letter's prospective consent permitted the adversity; "The prospective waiver in the Standard Engagement

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Terms provides in relevant part: 'It is possible that some of our current or future clients will have disputes with you during the time we are representing you.' 'We therefore also ask each of our clients to agree that we may continue to represent or may undertake in the future to represent existing or new clients in any matter that is not substantially related our work for you, even if the interest of such clients in those unrelated matters are directly adverse to yours . . . .'" (internal citation omitted); "The breadth and temporal scope of Patton Boggs' advanced waiver is open-ended. It purports to waive conflicts in any matter not substantially related indefinitely. The waiver also lacks specificity. It does not identify a potentially adverse client, the types of potential conflicts, or the nature of the representative matters."; "The Court finds that the advanced waiver did not amount to a full and reasonable disclosure of the potential conflict; accordingly, Tate & Lyle did not knowingly waive the conflict. . . . A second more specific waiver was required because the advanced waiver did not sufficiently disclose the nature of the conflict and the material risks of SPB's [Squire Patton Boggs] ongoing representation of Tate & Lyle and the adverse Sugar Plaintiffs." (footnote omitted); "The 'hot potato rule' bars an attorney and law firm from curing the dual representation of clients by expediently severing the relationship with the pre-existing client. . . . Accordingly, the automatic disqualification rule applicable to concurrent representations cannot be avoided by unilaterally converting a present client into a former client." (emphases added)).

• All Am. Semiconductor, Inc. v. Hynix Semiconductor, Inc., Nos. C 07-1200, - 1207, -1212 & No. 06-2915, 2008 U.S. Dist. LEXIS 106619, at *10-11, *11, *20-21, *24, *7-8, *33-34, *37-38 (N.D. Cal. Dec. 18, 2008) (assessing a situation in which lawyer John Vandevelde had represented Infineon's Vice President of Sales in connection with antitrust issues relating to the pricing of DRAM, and later joined (through a law firm merger) Crowell & Moring -- who was representing plaintiffs in an action against Infineon involving antitrust issues; noting: that Vandevelde's firm merged with Crowell on October 6, 2008, that two days later Infineon demanded that Crowell withdraw from representing its client in the case against Infineon, and that one day after the letter Crowell "despite its belief that there was no adversity between Hefner [former Infineon executive] and its current clients in this litigation, decided to erect an 'ethics wall' to protect against the inadvertent disclosure of confidential information to personnel at Crowell that the Lightfoot Vandevelde lawyers learned during their representation of Hefner"; explaining that as part of the "ethics wall . . . [a]ccording to Crowell, Crowell's document management system has been specially coded so that none of the former attorneys and staff of Lightfoot Vandevelde can access any documents related to the current litigation"; rejecting Crowell's argument that Vandevelde did not have an attorney-client relationship with Infineon and therefore should not be disqualified or cause Crowell & Moring to be disqualified; "[A] conflict of interest may be created when, as here, an attorney (Vandevelde) has

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acquired confidential information about a non-client (Infineon) in connection with his representation of a client (Hefner), such as when an attorney obtains confidential information about a co-defendant of a client during a joint defense of an action. Indeed, contrary to plaintiffs' contention, the fact that Vandevelde and Infineon never had an attorney-client relationship is not determinative of whether disqualification of Crowell is appropriate because 'an attorney's receipt of confidential information from a non-client may lead to the attorney's disqualification.'"; pointing to Crowell & Moring's ethics screen at highlighting the firm's belief that there might be a problem; "Crowell's reaction to discovering that Vandevelde had previously represented Hefner in prior litigation relating to DRAM price-fixing immediately erecting an ethical wall -- suggests that Crowell recognized that Vandevelde had a duty to protect the confidential information he received from Infineon in the course of that litigation."; also rejecting Crowell's argument that a joint defense agreement under which Vandevelde represented the Infineon executive contained a valid prospective consent in which Infineon agreed not to seek his disqualification; noting that the joint defense agreement contained the following consent language: "While the precise nature of each possible conflict that may arise in the future cannot be identified at the present time, each client member after being informed of the general nature of the conflicts that may arise, knowingly, and intelligently waives any conflict of interest that may arise on account of this Agreement, including specifically from an attorney member of this Agreement, other than his, her or its own attorney, cross-examining him, her or it at trial in any other proceeding arising from or relating to the above Investigation. Each client member further waives any claim of conflict of interest which might arise by virtue of participation by his, her or its attorney in this Agreement. Each attorney member and client member waives any right to seek the disqualification of counsel for any other attorney member who is a party to this Agreement based upon a communication of joint-defense privileged information."; finding the prospective consent ineffective; "The court is not convinced that Infineon gave its informed consent to waive its right to seek disqualification of Vandevelde under the circumstances. Plaintiffs did not offer persuasive evidence or argument indicating that the prospective waiver provision sufficiently disclosed the nature of the conflict that has subsequently arisen between the parties, and that Infineon knowingly and specifically waived its right to object to this conflict. Neither the language of the JDA nor the argument advanced by plaintiffs compels the conclusion that Infineon consented to Vandevelde prospectively undertaking adverse representation on behalf of plaintiffs against Infineon in substantially related litigation. Indeed, the only specific conflict waived by the parties in the JDA was the conflict that could arise if an attorney member of the joint defense (e.g., Vandevelde) cross-examined a defendant that the attorney member did not represent (i.e., Infineon) at trial or in any other proceeding arising from or relating to the joint defense. In other words, the parties to the JDA waived any duty of confidentiality for purposes of cross-examining testifying

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defendants. To the extent that plaintiffs urge the court to adopt a broader reading of the Paragraph 13, the court declines to do so."; ultimately finding that "disqualification of the entire Crowell firm is warranted. First, plaintiffs have not shown that Infineon's motion to disqualify was tactically motivated or otherwise brought for an improper purpose, such as to delay the proceedings. Second, while the court is mindful of the financial ramifications that disqualification of plaintiffs' counsel may subject plaintiffs to at this stage of the litigation, plaintiffs will not, as they suggest, be required to hire new counsel and prepare for a trial that is only six months away. Plaintiffs are simply mistaken in this regard. Only the dispositive motions involving Sun are being heard in December 2008 and only the trial of Sun will go forward in June 2009. The dispositive motions and trial for the four plaintiffs involved in this motion have yet to be scheduled. Thus, there is plenty of time for new counsel to get up to speed.").

• Celgene Corp. v. KV Pharm. Co., Civ. A. No. 07-4819 (SDW), 2008 U.S. Dist. LEXIS 58735, at *3-4, *13-14, *21-24, *32, *41 (D.N.J. July 28, 2008) (not for publication) (concluding that the following prospective consent in retainer letters between the law firm of Buchanan & Ingersoll and one of its clients was not sufficient to avoid the firm's disqualification: "'Recognizing and addressing conflicts of interest is a continuing issue for attorneys and clients. We have implemented policies and procedures to identify actual and potential conflicts at the outset of each engagement. From time to time we may be asked to represent someone whose interests may differ from the interests of the Company. We are accepting this engagement with the Company's understanding and express consent that our representation of the Company will not preclude us from accepting an engagement from a new or existing client, including litigation or other matters that may involve the Company. However, we will not accept an engagement that is directly adverse to the Company or any of its subsidiaries if either: (1) it would be substantially related to the subject matter of our representation of the Company or representation of Anthrogenesis Corp.; or (2) would impair the confidentiality of proprietary, sensitive or otherwise confidential communications made to us by the Company or Anthrogenesis Corp.'"; analyzing the standard for judging prospective consents under Congoleum [Century Indem. Co. v. Congoleum Corp., 426 F.3d 675 (3d Cir. 2005)]; concluding that the Buchanan Ingersoll retainer letters did not satisfy the standard; "'[T]ruly informed consent' requires the attorney to provide meaningful consultation to the client about potential conflicts. Thus, in determining whether Celgene gave 'truly informed consent,' the inquiry focuses in part on how Buchanan actually consulted with its client, Celgene, and informed Celgene about the potential conflict when consent was obtained."; concluding that the Buchanan Ingersoll retainer letters did not satisfy the standard; "This Court has examined the 2003 Retention Agreement and the 2006 Engagement Letter and does not find within either of those documents any of the following: 1) any statements

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which adequately communicate a proposed course of conduct with regard to concurrent conflicts of interest; 2) any explanation of the material risks of the course of conduct with regard to concurrent conflicts of interest; or 3) any explanation of reasonably available alternatives to the proposed course of conduct. . . . This Court finds no basis to conclude that either agreement manifests informed consent, within the meaning of RPC 1.0(e), for several reasons. First, both agreements propose a future course of conduct that is very open-ended and vague. Both provisions are so general that a reader has no clear idea what course of conduct Buchanan anticipated: what kinds of cases are substantially related? Did the parties anticipate that Buchanan would be adverse to Celgene in other patent cases? Second, there is nothing in the agreements to indicate that Buchanan communicated to Celgene adequate information or explanation about the risks of the proposed course of conduct, with regard to concurrent conflicts of interest: would Celgene be comfortable if Buchanan represented a generic pharmaceutical company in a patent case? Third, there is nothing in the agreements to indicate that Buchanan explained to Celgene reasonably available alternatives to the proposed course of conduct, such as Celgene asking Buchanan to specifically define 'substantially related' or requesting an even broader limitation -- perhaps that Buchanan would not represent any generic drug companies. The record does not show that Celgene received anything in return for agreeing to these provisions. Indeed, the agreements only appear to benefit Buchanan -- which further underscores the importance of Buchanan fully explaining the meaning and implications of the waiver. Neither agreement manifests informed consent within the meaning of RPC 1.7(b) and 1.0(e)."; "It is significant that Buchanan does not even assert, no less offer supporting evidence, that Buchanan at any time provided a consultation to Celgene on the conflict waiver, nor that Buchanan provided full -- or any -- disclosure on the matter of conflicts of interest, nor that Buchanan communicated 'adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.' RPC 1.0(e)."; ultimately holding that Buchanan Ingersoll did not carry its burden of proof in establishing that the client gave "truly informed consent" to the firm's representation of another client adverse to it).

• Wolk v. Flight Options, Inc., No. 03-cv-06840, 2005 U.S. Dist. LEXIS 19891 (E.D. Pa. Sept. 13, 2005) (refusing to validate a contingency fee arrangement because the lawyer had included a general prospective consent in the retainer agreement).

• Concat LP v. Unilever, PLC, 350 F. Supp. 2d 796, 801-02, 820, 821 (N.D. Cal. 2004) (disqualifying Morgan Lewis & Bockius from representing a client adverse to another client who had signed a retainer letter containing the following prospective consent: "'Morgan, Lewis & Bockius is a large law firm, and we represent many other companies and individuals. It is possible that

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some of our present or future clients will have disputes or other dealings with you during the time that we represent you. Accordingly, as a condition of our undertaking of this matter for you, you agree that Morgan, Lewis & Bockius may continue to represent, or may undertake in the future to represent, existing or new clients in any matter, including litigation, that is not substantially related to our work for you, even if the interests of such clients in those other matters are directly adverse to you. Further, you agree in light of its general consent to such unrelated conflicting representations, Morgan, Lewis & Bockius will not be required to notify you of each such representation as it arises. We agree, however, that your prospective consent to conflicting representations contained in the preceding sentence shall not apply in any instance where, as the result of our representation of you, we have obtained confidential information of a non-public nature that, if known to another client of ours, could be used to your material disadvantage in a matter in which we represent, or in the future are asked to undertake representation of, that client.'"; finding the prospective consent ineffective; "Applying these factors to the waiver executed by Dr. Winchell at Thomas' request, Winchell Decl., Ex. 1, the Court finds as follows: (1) the terms of the waiver are extremely broad and were evidently intended to cover almost any eventuality; (2) its temporal scope is likewise unlimited; (3) the record contains no evidence of any discussion of the waiver; (4) the waiver lacks specificity as to the conflicts that it covers and effectively awards Morgan, Lewis an almost blank check; (5) however, Morgan Lewis explicitly stated that it would not seek to represent Dr. Winchell and an adverse client in a 'substantially related' matter; and (6) Dr. Winchell's education and business experience are strongly indicative of a high degree of sophistication. Thus, the fifth and sixth factors tend to support a finding of informed consent, but the first four weigh in the opposite direction. The interests of justice (factor 7) remain to be determined." (footnote omitted); also explaining that "[u]nder the law of this jurisdiction, even if a prospective waiver of conflict has been obtained, the attorney must request a second, more specific waiver, 'if the [prospective] waiver letter insufficiently disclosed the nature of the conflict that subsequently arose between the parties.' . . . This Morgan, Lewis did not do.").

• Goss Graphics Sys., Inc. v. MAN Roland Druckmaschinen Aktiengesellschaft, No. C00-0035 MJM, 2000 U.S. Dist. LEXIS 18100, at *7 (N.D. Iowa May 25, 2000) (disqualifying Kirkland & Ellis from representing a client adverse to another firm client who had signed a retainer letter with the following prospective consent: "In the event a present conflict of interest exists between [Goss] and [Kirkland's] other clients or in the event one arises in the future, [Goss] agrees to waive any such conflict of interest or other objection that would preclude [Kirkland's] representation of another client in other current or future matters. Accordingly, our representation of [Goss] in connection with the [Bankruptcy Proceedings] and in connection with any future matter will be with the understanding that such representation will not

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preclude [Kirkland] from continuing any present representation or assuming future representation in other matters that another client may request (other than a matter where [Goss] and another [Kirkland] client are on opposing sides of litigation).").

• Worldspan, L.P. v. Sabre Group Holdings, Inc., 5 F. Supp. 2d 1356, 1359, 1359-60, 1360 (N.D. Ga. 1998) (disqualifying defendants' local counsel despite the following prospective consent which plaintiff Worldspan signed when the law firm began to represent plaintiff on unrelated matters approximately five years earlier: "'As we have discussed, because of the relatively large size of our firm and our representation of many other clients, it is possible that there may arise in the future a dispute between another client and WORLDSPAN, or a transaction in which WORLDSPAN's interests do not coincide with those of another client. In order to distinguish those instances in which WORLDSPAN consents to our representing such other clients from those instances in which such consent is not given, you have agreed, as a condition to our undertaking this engagement, that during the period of this engagement we will not be precluded from representing clients who may have interests adverse to WORLDSPAN so long as (1) such adverse matter is not substantially related to our work for WORLDSPAN, and (2) our representation of the other client does not involve the use, to the disadvantage of WORLDSPAN, of confidential information of WORLDSPAN, we have obtained as a result of representing WORLDSPAN.'"; "Looking only at the original letter itself, the Court finds that its very language is ambiguous. The phrase 'will not be precluded from representing clients who may have interests adverse to WORLDSPAN so long as (1) such adverse matter' does not necessarily or even impliedly foreshadow future directly adverse litigation. It is the opinion of the Court that future directly adverse litigation against one's present client is a matter of such an entirely different quality and exponentially greater magnitude, and so unusual given the position of trust existing between lawyer and client, that any document intended to grant standing consent for the lawyer to litigate against his own client must identify that possibility, if not in plain language, at least by irresistible inference including reference to specific parties, the circumstances under which such adverse representation would be undertaken, and all relevant like information."; noting that the prospective consent allowed the law firm to begin to represent new clients in matters adverse to its existing client WORLDSPAN, which the court indicated carried "added weight" in its analysis).

• Hasco, Inc. v. Roche, 700 N.E.2d 768, 776 (Ill. App. Ct. 1998) (finding that prospective consent language in a retainer letter was not sufficient; explaining the consent letter contained the following provision: "'6. Waiver of Conflict of Interest. Each of Clients, as a subordinated lender to Arauca, has a claim against Arauca arising from any default by Arauca in repayment of the subordinated debt. Clients have been advised by Arauca that Arauca

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presently lacks sufficient resources to repay the subordinated debt. SRZ is presently representing Arauca in its pursuit of claims against FOC to recover lost profits on the Syntex transaction and for other relief. SRZ is also furnishing other legal advice to Arauca and its general partner, Arauca General, Inc. ("AGI"). A conflict exists between the interests of Arauca, AGI and each of the Clients. By executing this letter-agreement, each of the Clients hereby consents to waive any conflict of interest associated with the representation by SRZ of Arauca and the representation of Clients by SRZ with respect to their claims against FOC. Each Client further recognizes and acknowledges the SRZ shall have no obligation to advise any Client with respect to any actual or potential claim against Arauca.'"; concluding that "[a]lthough the Schuyler parties argue that this waiver extends to the NASD arbitration dispute, the circuit court correctly determined that this conflict waiver was limited to SRZ's representation of the subordinated lenders in the West Virginia lawsuit").

• Florida Ins. Guar. Ass'n v. Carey Canada, Inc., 749 F. Supp. 255, 259-60 (S.D. Fla. 1990) (disqualifying a law firm from representing the insured in a lawsuit by the insurer against the insured; rejecting the law firm's argument that it had a prospective consent, because the law firm had "failed to come forward with any written instrument evidencing such consent," and "has been unable to identify any single [insurance company] employee much less a specific conversation that ever provided [the law firm] with standing consent to sue" the insurance company).

Not surprisingly, courts generally recognizing the effectiveness of prospective

consents apply them as they are written -- which sometimes trips up law firms which have not adequately defined the scope of the prospective consent.

• Brigham Young Univ. v. Pfizer, Inc., Case No. 2:06-CV-890 TS BCW, 2010 U.S. Dist. LEXIS 104164, at *5-6, *11, *12 (D. Utah Sept. 29, 2010) (finding that a prospective consent Brigham Young University signed when retaining Winston & Strawn allowed Winston & Strawn only to represent existing clients in matters adverse to BYU; quoting the following prospective consent language: "'Advance Patent Waiver: As you may know, universities frequently hold patents in the product and inventions developed at such universities. Winston & Strawn LLP currently represents multiple pharmaceutical and other companies with respect to patent and intellectual property matters (collectively, the "Other Clients"), including litigation (the "Patent Matters"). Winston & Strawn LLP is not currently representing any Other Clients in matters adverse to the University. Because of the scope of our patent practice, however, it is possible that Winston & Strawn LLP will be asked in the future to represent one or more Other Clients in matters,

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including litigation, adverse to the University. Therefore, as a condition to Winston & Strawn LLP's undertaking to represent you in the BYU Matters, you agree that this firm may continue to represent Other Clients in the Patent Matters, including litigation, directly adverse to the University and hereby waive any conflict of interest relating to such representation of Other Clients."'; finding that the prospective consent was limited only to current Winston & Strawn clients; "[T]he plain language of the engagement letter limits the term 'Other Clients' to companies the firm is, at the present, acting in their behalf or stead."; "The Court finds the plain language to be clear and fully supports the Magistrate Judge's conclusion that 'the waiver only applies to clients that Winston was representing with respect to patent and intellectual property matters as of the date of the agreement.'"; disqualifying Winston & Strawn from representing a new client (Pfizer) in a matter adverse to BYU).

Consent Language

Lawyers hoping to arrange for an effective prospective consent must undertake

an awkward balancing act.

The kind of explicit (often ugly) language that might be required to assure an

effective prospective consent could prompt the requested client to turn down the

request for consent, or even become angry at being asked. On the other hand, a

proposed prospective consent that attempts to "finesse" the issue by not explicitly

describing the possible adversity, or not describing litigation as included within the

scope of the prospective consent,1 might ultimately prove to be ineffective if a court

must later assess the consent.

1 Worldspan, L.P. v. Sabre Group Holdings, Inc., 5 F. Supp. 2d 1356, 1359-60 (N.D. Ga. 1998) (disqualifying defendant's local counsel despite a prospective consent; "It is the opinion of this Court that future directly adverse litigation against one's present client is a matter of such an entirely different quality and exponentially greater magnitude, and so unusual given the position of trust existing between lawyer and client, that any document intended to grant standing consent for the lawyer to litigate against his own client must identify that possibility, if not in plain language, at least by irresistible inference including reference to specific parties, the circumstances under which such adverse representation would be undertaken, and all relevant like information." (emphasis added)).

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The New York City Bar provided the following example of prospective consent language that would cover matters substantially related to what the firm was handling for the client.

You also agree that this firm may now or in the future represent another client or clients with actually or potentially differing interests in the same negotiated transaction in which the firm represents you. In particular, and without waiving the generality of the previous sentence, you agree that we may represent [to the extent practicable, describe the particular adverse representations that are envisioned, such as "other bidders for the same asset" or "the lenders or parties providing financing to the eventual buyer of the asset"]. This waiver is effective only if this firm concludes in our professional judgment that the tests of DR 5-105 are satisfied. In performing our analysis, we will also consider the factors articulated in ABCNY Formal Opinion 2001-2, including (a) the nature of any conflict; (b) our ability to ensure that the confidences and secrets of all involved clients will be preserved; and (c) our relationship with each client. In examining our ability to ensure that the confidences and secrets of all involved clients will be preserved, we will establish an ethical screen or other information-control device whenever appropriate, and we otherwise agree that different teams of lawyers will represent you and the party adverse to you in the transaction.

New York City LEO 2006-1 (2/17/06) (footnote omitted).

The same legal ethics opinion suggested the following prospective consent language that would not cover substantially related matters.

Other lawyers in the Firm currently do [XXX] work for [existing client] and its affiliates, and expect to continue to do such work. In order to avoid any misunderstanding in the future, we ask that you confirm that the Company agrees to waive any conflict of interest which may be deemed to arise as a result of such representation. Please also confirm that neither the Company nor any of its affiliates will seek to disqualify our Firm from representing [existing client] or its affiliates in existing or future [XXX] or other matters. Our agreement to represent you is conditioned upon the

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understanding that we are free to represent any clients (including your adversaries) and to take positions adverse to either the company or an affiliate in any matters (whether involving the same substantive area(s) of law for which you have retained us or some other unrelated area(s), and whether involving business transactions, counseling, litigation or other matters), that are not substantially related to the matters for which you have retained us or may hereafter retain us. In this connection, you should be aware that we provide services on a wide variety of legal subjects, to a large number of clients both in the United States and internationally, some of whom are or may in the future operate in the same area(s) of business in which you are operating or may operate. (A summary of our current practice areas and the industries in which we represent clients can be found on our web site at www.XXX.com.) You acknowledge that you have had the opportunity to consult with your company's counsel [if client does not have in- house counsel, substitute: 'with other counsel'] about the consequences of this waiver. In this regard, we have discussed with you and you are aware that we render services to others in the area(s) of business in which you currently engage.

New York City LEO 2006-1 (2/17/06).

The Washington, D.C., Bar suggested the following prospective consent language (although warning that the language was not "authoritative or exclusive").

"As we have discussed, the firm represents many other companies and individuals. It is possible that during the time we are representing you, some of our current or future clients will have disputes or transactions with you. [For example, although we are representing you on ______, we have or may have clients whom we represent in connection with ______.] You agree that we may continue to represent, or undertake in the future to represent, existing or new clients in any matter, including litigation, even if the interests of such other clients in such other matters are directly adverse to yours, so long as those matters are not substantially related to our work for you."

District of Columbia LEO 309 (9/20/01).

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Courts have rejected the effectiveness of the following prospective consent provisions.

"While the precise nature of each possible conflict that may arise in the future [in connection with a common interest agreement among several separately represented companies] cannot be identified at the present time, each client member after being informed of the general nature of the conflicts that may arise, knowingly, and intelligently waives any conflict of interest that may arise on account of this Agreement, including specifically from an attorney member of this Agreement, other than his, her or its own attorney, cross-examining him, her or it at trial in any other proceeding arising from or relating to the above Investigation. Each client member further waives any claim of conflict of interest which might arise by virtue of participation by his, her or its attorney in this Agreement. Each attorney member and client member waives any right to seek the disqualification of counsel for any other attorney member who is a party to this Agreement based upon a communication of joint-defense privileged information."

All Am. Semiconductor, Inc. v. Hynix Semiconductor, Inc., Nos. C 07-1200, -1207, -

1212 & No. 06-2915, 2008 U.S. Dist. LEXIS 106619, at *7-8, *32-34 (N.D. Cal.

Dec. 18, 2008).

"Recognizing and addressing conflicts of interest is a continuing issue for attorneys and clients. We have implemented policies and procedures to identify actual and potential conflicts at the outset of each engagement. From time to time we may be asked to represent someone whose interests may differ from the interests of the Company. We are accepting this engagement with the Company's understanding and express consent that our representation of the Company will not preclude us from accepting an engagement from a new or existing client, including litigation or other matters that may involve the Company. However, we will not accept an engagement that is directly adverse to the Company or any of its subsidiaries if either: (1) it would be substantially related to the subject matter of our representation of the Company or representation of Anthrogenesis Corp.; or (2) would impair the confidentiality

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of proprietary, sensitive or otherwise confidential communications made to us by the Company or Anthrogenesis Corp."

Celgene Corp. v. KV Pharm. Co., Civ. A. No. 07-4819 (SDW), 2008 U.S. Dist. LEXIS

58735, at *3-4 (D.N.J. July 28, 2008) (not for publication).

"Morgan, Lewis & Bockius is a large law firm, and we represent many other companies and individuals. It is possible that some of our present or future clients will have disputes or other dealings with you during the time that we represent you. Accordingly, as a condition of our undertaking of this matter for you, you agree that Morgan, Lewis & Bockius may continue to represent, or may undertake in the future to represent, existing or new clients in any matter, including litigation, that is not substantially related to our work for you, even if the interests of such clients in those other matters are directly adverse to you. Further, you agree in light of its general consent to such unrelated conflicting representations, Morgan, Lewis & Bockius will not be required to notify you of each such representation as it arises. We agree, however, that your prospective consent to conflicting representations contained in the preceding sentence shall not apply in any instance where, as the result of our representation of you, we have obtained confidential information of a non-public nature that, if known to another client of ours, could be used to your material disadvantage in a matter in which we represent, or in the future are asked to undertake representation of, that client."

Concat LP v. Unilever, PLC, 350 F. Supp. 2d 796, 801-02 (N.D. Cal. 2004).

"In the event a present conflict of interest exists between [Goss] and [Kirkland's] other clients or in the event one arises in the future, [Goss] agrees to waive any such conflict of interest or other objection that would preclude [Kirkland's] representation of another client in other current or future matters. Accordingly, our representation of [Goss] in connection with the [Bankruptcy Proceedings] and in connection with any future matter will be with the understanding that such representation will not preclude [Kirkland] from continuing any present representation or assuming future representation in other matters that another

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client may request (other than a matter where [Goss] and another [Kirkland] client are on opposing sides of litigation)."

Goss Graphics Sys., Inc. v. MAN Roland Druckmaschinen Aktiengesellschaft, No. C00-

0035 MJM, 2000 U.S. Dist. LEXIS 18100, at *7 (N.D. Iowa May 25, 2000).

"As we have discussed, because of the relatively large size of our firm and our representation of many other clients, it is possible that there may arise in the future a dispute between another client and WORLDSPAN, or a transaction in which WORLDSPAN's interests do not coincide with those of another client. In order to distinguish those instances in which WORLDSPAN consents to our representing such other clients from those instances in which such consent is not given, you have agreed, as a condition to our undertaking this engagement, that during the period of this engagement we will not be precluded from representing clients who may have interests adverse to WORLDSPAN so long as (1) such adverse matter is not substantially related to our work for WORLDSPAN, and (2) our representation of the other client does not involve the use, to the disadvantage of WORLDSPAN, of confidential information of WORLDSPAN, we have obtained as a result of representing WORLDSPAN."

Worldspan, L.P. v. Sabre Group Holdings, Inc., 5 F. Supp. 2d 1356, 1359 (N.D. Ga.

1998).

In contrast, a court upheld the effectiveness of the following prospective consent.

"Our engagement by you is also understood as entailing your consent to our representation of our other present or future clients in 'transactions,' including litigation in which we have not been engaged to represent you and in which you have other counsel, and in which one of our other clients would be adverse to you in matters unrelated to those that we are handling for you. In this regard, we discussed [Heller's] past and on-going representation of Visa U.S.A. and Visa International (the later mainly with respect to trademarks) (collectively, 'Visa') in matters which are not currently adverse to First Data. Moreover, as we discussed, we are not aware of any current adversity between Visa and First Data. Given the nature of our relationship with Visa, however, we discussed the need for the firm to preserve its

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ability to represent Visa on matters which may arise in the future including matters adverse to First Data, provided that we would only undertake such representation of Visa under circumstances in which we do not possess confidential information of yours relating to the transaction, and we would staff such a project with one or more attorneys who are not engaged in your representation. In such circumstances, the attorneys in the two matters would be subject to an ethical wall, screening them from communicating from [sic] each other regarding their respective engagements. We understand that you do consent to our representation of Visa and our other clients under those circumstances."

Visa U.S.A., Inc. v. First Data Corp., 241 F. Supp. 2d 1100, 1102-03 (N.D. Cal. 2003).

Other Law Firm Strategies

Some law firms have tried to obtain what amounts to a prospective consent by

defining their work for a client as non-legal services.

Presumably those firms hoped to avoid the unforgiving law-related conflicts rules.

Several large firms have failed in these efforts.

• Acad. of Allergy & Asthma in Primary Care v. La. Health Serv. & Indem. Co., 384 F. Supp. 3d 644, 654, 654-55 (E.D. La. 2018) (disqualifying Baker Donelson from representing the Louisiana Blue Cross Blue Shield entity in an antitrust case brought by the firm’s former client; rejecting the firm’s argument that it had not provided “legal services” to the former client and therefore did not face an ethics conflict; “Baker Donelson admits to providing ‘government relations services’ for UAS, but denies in its opposition that these were legal services. . . . Thus, Baker Donelson appears to have argued that the first prong of the substantial relationship test is unmet.”; “[I]t is inescapably clear that an attorney-client relationship formed because Baker Donelson formally manifested its consent in an engagement letter it sent to UAS. The letter, written on firm letterhead by attorney Donna Fraiche and addressed to UAS, states as its subject line: ‘Engagement as counsel.’ . . . In the third paragraph of the engagement letter, Ms. Fraiche breaks down her billing rates for ‘legal services.’ Attached to the engagement letter was a document listing the terms of engagement. The term sheet begins: ‘We appreciate your decision to retain Baker Donelson . . . as your legal counsel.’” (last alteration in original); “Furthermore, UAS states—and Baker Donelson has not refuted—that UAS’s client file indicates that “UAS was billed more than $200,000 for ‘legal services rendered.’”; “Finally, the summary of the meeting that took place

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between UAS, Blue Cross, and the commissioner of the Louisiana Department of Insurance labels Donna Fraiche and Baker Donelson as UAS’s ‘legal counsel.’ Frankly, given this evidence it is troubling that Baker Donelson would even argue in its briefs that it was never engaged as UAS’s attorney.”).

• United States ex rel. Luke v. Healthsouth Corp., Case No. 2:13-cv-01319- APG-VCF, 2017 U.S. Dist. LEXIS 186894, at *2-3, *3-4, *10-11, *11, *12-13 (D. Nev. Nov. 10, 2017) (disqualifying Troutman Sanders from representing a doctor in a False Claims Act action against Healthsouth, because Troutman lawyers based in Georgia had lobbied on Healthsouth's behalf [applying the concurrent conflicts rules because Troutman had simultaneously lobbied for Healthsouth and been adverse to it in the Nevada litigation for a time] behalf; explaining the factual background; “In August 2017, the defendants moved to disqualify the Troutman firm from representing Luke because in early 2017, defendant Healthsouth Corporation hired two Troutman attorneys, Peter Robinson and Robb Willis, to provide lobbying services for Healthsouth in Georgia. . . . As part of that arrangement [after the Nevada case had begun], Healthsouth provided confidential information to Robinson and Willis. . . . According to Healthsouth Executive Vice President John Patrick Darby, Healthsouth would not have entered into the lobbying agreement had it known that Troutman had already filed suit against Healthsouth on Luke's behalf in Nevada.”; “The lobbying agreement is between Healthsouth and Troutman Sanders Strategies, a limited liability company wholly owned by the Troutman law firm. ECF No. 66-3 at 3. The agreement identifies those who will lobby on Healthsouth's behalf, including attorneys Robinson and Willis. Id. at 3. The agreement states that Strategies may receive support from attorneys at the Troutman law firm with Healthsouth's approval and, if that occurs, Healthsouth would have to enter into a separate agreement for services with the Troutman firm. Id. The agreement states that Strategies would not be providing legal services to Healthsouth and '[a]ccordingly, [Healthsouth] will not have an attorney-client relationship with [Strategies] and its employees with regards to the services that [Strategies] will provide related to the agreement.' Id. at 4. The agreement has a 'conflict of interest' section which states that Strategies will not lobby positions that would be in conflict with Strategies' obligations under the agreement. Id. It also states Strategies 'is not providing legal services as part of this agreement.' Id. However, it does not state that the Troutman law firm may represent someone suing Healthsouth.” (alterations in original); applying Nevada's conflicts of interest rules, rather than the Georgia conflicts rules – although Troutman's lobbyists for Healthsouth were based in Georgia; “Rule 1.10(a)'s imputed disqualification rule refers back to Nevada's Rules for conflicts. Under Nevada's Rules, a lawyer cannot concurrently represent adverse clients without the clients' informed consent. Regardless of how Georgia would define the relationship between the Troutman lawyers and Healthsouth, if Robinson [Lawyer] or Willis attempted to represent Luke against Healthsouth

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in Nevada, the Nevada Rules of Professional Conduct would not allow it. See State Bar of Nev. Standing Comm. on Ethics and Professional Responsibility Formal Opinion No. 52 (concluding a lawyer (or a subsidiary of a law firm) who provides lobbying services is subject to Nevada Rule of Professional Conduct 1.7). Because Robinson and Willis are disqualified, so is the entire Troutman firm. Nev. R. Prof. Conduct 1.10(a).”; “This does not mean the court is applying the Nevada Rules to the lawyers in Georgia who had no reason to expect this result. Rather, the court is applying the Nevada Rules to the lawyers who appeared in Nevada in this case. Because the Nevada Rules apply to these lawyers, it was incumbent on them to avoid a disqualifying condition under those Rules. Strategies conducted a conflicts check before accepting the lobbying agreement in Georgia. ECF No. 92 at 17. The Troutman lawyers thus were aware of the possibility that by accepting the lobbying agreement, the Nevada representation could be jeopardized, even if Georgia would allow it. The Troutman lawyers could have attempted to obtain Healthsouth's informed consent or they could have declined the lobbying agreement. But what they could not do under Nevada law was concurrently provide law-related services to Healthsouth in Georgia and represent Luke suing Healthsouth in Nevada.”; “The public may view with suspicion a multi-state law firm that accepts a lobbying agreement in one state while representing someone suing the lobbying client in another state without obtaining informed consent. Weighing the competing interests, disqualification is the proper result. I therefore overrule the objections to Magistrate Judge Ferenbach's disqualification ruling. The Troutman firm is disqualified from representing Luke in this action.” (emphases added)).

• First NBC Bank v. Murex, LLC, 259 F. Supp. 3d 38, 40. 40-41. 41, 43, 49, 49- 50, 50, 58-59, 59, 61, 62, 65, 66, 67 (S.D.N.Y. 2017) (disqualifying Holland & Knight for providing legal advice to one client adverse to another client; noting that the law firm's work for the first client began as law-related but non-legal work, but eventually morphed into legal advice; "This decision resolves a motion to disqualify counsel. Defendant Murex, LLC ('Murex') moves to disqualify the law firm Holland & Knight LLP ('H&K'), which, on behalf of plaintiff First NBC Bank ('FNBC') brought this 13-count lawsuit, claiming that Murex sold FNBC bogus receivables, and accusing Murex of, inter alia, breach of contract, breach of fiduciary duty, fraud, tortious interference with contract, and racketeering."; "Murex's motion to disqualify is based on the fact that Murex was an H&K client: At the time that H&K's litigators in Atlanta were readying to sue it, Murex alleges, its Washington, D.C., office was separately representing Murex in regulatory work. H&K's representation of Murex began as a lobbying representation, but, Murex contends, it grew to include legal services, triggering an attorney-client relationship and the canons of professional responsibility. Most notably, Murex contends, H&K helped Murex defend itself against an enforcement action that the Environmental Protection Agency ('EPA') had threatened. When eventually

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notified that H&K also represented FNBC and wished to sue Murex on FNBC's behalf, Murex refused to consent. Murex thus argues that H&K engaged in an unconsented-to concurrent representation of a client (Murex) and a party with interests adverse to it (FNBC), prima facie improper under professional canons. Murex argues that allowing H&K to represent FNBC in this lawsuit would give rise to an actual and apparent conflict of loyalties and taint this lawsuit. H&K, backed by FNBC, opposes the disqualification motion."; "For the reasons that follow, the Court grants the motion to disqualify."; "The engagement letter between H&K and Murex, signed by McAdams and by Murex's president, Robert Wright, provides, in pertinent part: . . . 'In addition, please be aware that the services for which you have engaged Holland & Knight are "law-related services" and not "legal services." In other words, the firm will not be acting as your lawyers in this matter but rather in a lobbying capacity utilizing nonlawyer personnel. As such, the protections which accompany an attorney-client relationship do not apply. For example, while the firm will keep your information confidential, the specific rules governing lawyers and client confidential information do not apply. Further, the firm's lawyers would not be prohibited from providing legal services to clients in unrelated legal matters that are adverse to you. While conflicts of interest rules applicable to lawyers would not apply, we, of course, would not undertake lobbying services for another client adverse to the matter on which you have engaged our services.'"; "In mid-March 2016, Murex, 'generally satisfied' with H&K's work, sought to expand H&K's engagement 'beyond what H&K could reasonably provide given the $10,000 monthly fee cap.'. . . Murex asked McAdams and H&K partner Kaufman to prepare a legal work budget for research, analysis, and work related to the EPA's renewable fuel standard (the 'RFS legal work')."; "Around the same time, attorneys for H&K asked that Murex sign a conflict waiver that would allow H&K to concurrently represent FNBC against Murex in the claims, that, ultimately, FNBC brought in this lawsuit, related to allegedly fraudulent receivables."; "Bartel emailed McAdams and declined to sign the conflict waiver."; "The Court has little doubt that, had H&K's ensuing services to Murex been confined to those described in the Engagement Agreement, Murex could not credibly claim that H&K had provided it legal services, formed an attorney-client relationship with it, or took on a conflicting engagement in breach of canons of professional responsibility. The codes of conduct applicable to the District of Columbia, where H&K's EPA-related work for Murex was centered, identify lobbying as a distinct discipline from the practice of law."; "Engagement Agreement with Murex thus was correct to recite that, when a client engages a lobbyist as such, the client does not obtain the benefits of an attorney-client relationship, including the conflict rules governing attorneys."; "The 'words on the page' of the Engagement Agreement, on which H&K relies for its claim that its performed only lobbying services, do not, however, describe the reality of H&K's ensuing work for Murex. H&K's representation of Murex was an example of 'mission creep,' in

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which the scope of a firm's work for its client grew beyond that described in its engagement agreement without any corresponding modification of that agreement or open acknowledgment between the firm and its client that the representation in fact had overrun the written agreement."; "From the outset, in fact, H&K's work for Murex materially exceeded the scope of work described in the Engagement Agreement."; "The issue then is whether this work constituted legal or lobbying services. . . . [A]s to McAdam's efforts on Murex's behalf that were occasioned by the EPA Notice, the question is easily answered: This was legal work."; "McAdams performed, over a five- week period spanning late January through early March 2016, the quintessential legal services of drafting and editing affirmative defenses for it to submit to the EPA to try to fend off an adverse action, counseling Murex as the application of agency regulations to the company's historical facts, and advising it as to strategy as to its submissions. McAdams also reviewed confidential materials and information of his client."; "And H&K had no other legal help in this endeavor: No lawyer outside the firm assisted Murex to defend itself before the EPA."; "On the facts here, however, H&K cannot use the waiver provision in its agreement with Murex as a shield. The agreement simply did not cover the legal services that H&K came to provide Murex. It did not describe H&K's services to Murex as including the defense of the threatened enforcement action. And it described the firm's services to Murex as lobbying only, as proved inaccurate. Unhelpfully, the agreement's broadly worded advance waiver provision also did not identify the FNBC matter as one in which the firm sought to reserve the right to be adverse to Murex. Under these circumstances, the advance waiver agreement that H&K sought and received from its non-lawyer contacts at Murex fell well short of embodying informed client consent."; "Contrary to its suggestion, H&K was not, at all, powerless to prevent this situation. To 'protect itself,' H&K need only have declined the assignment of defending Murex against the threatened enforcement action. Nothing obliged H&K to accept that project. Alternatively, before taking on Murex's defense before the EPA, H&K could have amended the Engagement Agreement to accurately describe the firm's work for Murex and – assuming informed client consent – to provide for an advance waiver as to other matters, such as the FNBC litigation. H&K did not do so before undertaking Murex's defense. And, when H&K, after its defense of Murex began, finally alerted to its dual representations and sought a waiver from Murex of the conflict with the FNBC representation, Murex refused to consent to H&K's suing it."; "The predicament in which H&K finds itself, in which it faces the consequences from a conflict perspective of having taken on work outside the Engagement Agreement, was therefore of its own making."; "The Court . . . rejects as hyperbole H&K's claim that an adverse ruling here would leave law firms without 'protect[ion]' where an employee receives 'an unexpected, unsolicited email' asking the firm to take on a new project. The answer is for firms to have systems, cultures, and informed personnel that assure that decisions as to client matter intake and expansion

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are made collaboratively, consultatively, and carefully with due regard for the conflict consequences." (second alteration in original) (emphases added)).

Best Answer

The best answer to this hypothetical is (A) YES (PROBABLY).

N 3/12

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Disqualification -- Standards

Hypothetical 36

Your law firm has either filed or defended a number of disqualification motions lately, and you would like to understand how the disqualification standard differs (if at all) from the conflicts analysis with which you are fairly familiar.

(a) Is a court likely to disqualify a law firm upon finding it guilty of a conflicts violation?

(A) YES

(B) NO

MAYBE

(b) Is the court likely to rely on an "appearance of impropriety" standard when assessing a disqualification motion?

(A) YES

(B) NO

MAYBE

Analysis

(a) Although each state follows its own disqualification standard, many states explicitly recognize that a conflict of interest does not automatically result in a law firm's disqualification as counsel of record in litigation. ABA Model Rules Preamble & Scope explains that "violation of a Rule does not necessarily warrant any other nondisciplinary remedy, such as disqualification of a lawyer in pending litigation."

In some situations, a court's choice of laws determination can be dispositive.

• United States ex rel. Luke v. Healthsouth Corp., Case No. 2:13-cv-01319- APG-VCF, 2017 U.S. Dist. LEXIS 186894, at *2-3, *3-4, *10-11, *11, *12-13 (D. Nev. Nov. 10, 2017) (disqualifying Troutman Sanders from representing a

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doctor in a False Claims Act action against Healthsouth, because Troutman lawyers based in Georgia had lobbied on Healthsouth's behalf [applying the concurrent conflicts rules because Troutman had simultaneously lobbied for Healthsouth and been adverse to it in the Nevada litigation for a time] behalf; explaining the factual background; “In August 2017, the defendants moved to disqualify the Troutman firm from representing Luke because in early 2017, defendant Healthsouth Corporation hired two Troutman attorneys, Peter Robinson and Robb Willis, to provide lobbying services for Healthsouth in Georgia. . . . As part of that arrangement [after the Nevada case had begun], Healthsouth provided confidential information to Robinson and Willis. . . . According to Healthsouth Executive Vice President John Patrick Darby, Healthsouth would not have entered into the lobbying agreement had it known that Troutman had already filed suit against Healthsouth on Luke's behalf in Nevada.”; “The lobbying agreement is between Healthsouth and Troutman Sanders Strategies, a limited liability company wholly owned by the Troutman law firm. ECF No. 66-3 at 3. The agreement identifies those who will lobby on Healthsouth's behalf, including attorneys Robinson and Willis. Id. at 3. The agreement states that Strategies may receive support from attorneys at the Troutman law firm with Healthsouth's approval and, if that occurs, Healthsouth would have to enter into a separate agreement for services with the Troutman firm. Id. The agreement states that Strategies would not be providing legal services to Healthsouth and '[a]ccordingly, [Healthsouth] will not have an attorney-client relationship with [Strategies] and its employees with regards to the services that [Strategies] will provide related to the agreement.' Id. at 4. The agreement has a 'conflict of interest' section which states that Strategies will not lobby positions that would be in conflict with Strategies' obligations under the agreement. Id. It also states Strategies 'is not providing legal services as part of this agreement.' Id. However, it does not state that the Troutman law firm may represent someone suing Healthsouth.” (alterations in original); applying Nevada's conflicts of interest rules, rather than the Georgia conflicts rules – although Troutman's lobbyists for Healthsouth were based in Georgia; “Rule 1.10(a)'s imputed disqualification rule refers back to Nevada's Rules for conflicts. Under Nevada's Rules, a lawyer cannot concurrently represent adverse clients without the clients' informed consent. Regardless of how Georgia would define the relationship between the Troutman lawyers and Healthsouth, if Robinson [Lawyer] or Willis attempted to represent Luke against Healthsouth in Nevada, the Nevada Rules of Professional Conduct would not allow it. See State Bar of Nev. Standing Comm. on Ethics and Professional Responsibility Formal Opinion No. 52 (concluding a lawyer (or a subsidiary of a law firm) who provides lobbying services is subject to Nevada Rule of Professional Conduct 1.7). Because Robinson and Willis are disqualified, so is the entire Troutman firm. Nev. R. Prof. Conduct 1.10(a).”; “This does not mean the court is applying the Nevada Rules to the lawyers in Georgia who had no reason to expect this result. Rather, the court is applying the Nevada Rules

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to the lawyers who appeared in Nevada in this case. Because the Nevada Rules apply to these lawyers, it was incumbent on them to avoid a disqualifying condition under those Rules. Strategies conducted a conflicts check before accepting the lobbying agreement in Georgia. ECF No. 92 at 17. The Troutman lawyers thus were aware of the possibility that by accepting the lobbying agreement, the Nevada representation could be jeopardized, even if Georgia would allow it. The Troutman lawyers could have attempted to obtain Healthsouth's informed consent or they could have declined the lobbying agreement. But what they could not do under Nevada law was concurrently provide law-related services to Healthsouth in Georgia and represent Luke suing Healthsouth in Nevada.”; “The public may view with suspicion a multi-state law firm that accepts a lobbying agreement in one state while representing someone suing the lobbying client in another state without obtaining informed consent. Weighing the competing interests, disqualification is the proper result. I therefore overrule the objections to Magistrate Judge Ferenbach's disqualification ruling. The Troutman firm is disqualified from representing Luke in this action.” (emphases added)).

• Alzheimer's Institute of Am., Inc. v. Avid Radiopharmaceuticals, Civ. A. No. 10-6908, 2011 U.S. Dist. LEXIS 140345, at *23, *6-7, *7 n.5, *9-10, *12 (E.D. Pa. Dec. 7, 2011) (declining to disqualify the law firm of Bryan Cave, although it faced a conflict of interest in continuing to represent its client the Alzheimer's Institute of America after intervention in the lawsuit by the South Florida Board of Trustees, which Bryan Cave represented on unrelated intellectual property matters; explaining the choice of laws issue for the disqualification; explaining the situation facing Bryan Cave; "Under both California's and Pennsylvania's rules of professional conduct, a lawyer may not represent one client whose interest is directly adverse to another client's without the consent of each client. USF refused to give its consent to Bryan Cave to continue representing AIA in these matters. Bryan Cave then filed its motion to withdraw because the attorneys believed they had an obligation to do so under the California and the ABA rules of professional conduct. Marshall explained that he moved to withdraw 'because [he] ha[d] to, not because [he] wanted to.'"; "In a diversity action, the court 'must apply the choice of law rules of the forum state to determine what substantive law will govern,' Huber v. Taylor, 469 F.3d 67, 73 (3d Cir. 2006) (quoting Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941)). Accordingly, we turn to Pennsylvania's choice of law rules to determine the applicable law." (footnote omitted); "Although this is not a diversity action, the issue of attorney conduct is a question of state, not federal law."; ultimately concluding that the Pennsylvania ethics rules apply; "[T]he plain language of Rule 8.5 and its explanatory comment clearly state that if the lawyer's conduct relates to a proceeding pending before a tribunal, the lawyer is 'subject only to the disciplinary rules of the jurisdiction in which the tribunal sits.' Because Bryan Cave's motion to withdraw pertains to a

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proceeding pending in this court and the Pennsylvania Rules of Professional Conduct govern this tribunal, Pennsylvania's Rules of Professional Conduct apply in this case."; rejecting USF's argument that California ethics rules applied, and emphasizing that under California Rules the disqualification would be mandatory; "USF is correct that California Rule of Professional Conduct 3-310 imposes a per se disqualification rule whenever a concurrent conflict is presented.").

Many states follow a two-part test when assessing disqualification motions. First, the courts determine if there is clear evidence of a conflict. Second, the court then determines whether the conflict would somehow "taint" the proceeding. These courts disqualify a law firm only if both of these tests are satisfied. Board of Educ. of N.Y.

City v. Nyquist, 590 F.2d 1241, 1246 (2d Cir. 1979) (holding that lawyers should be disqualified for conflicts only if the conflict will "taint the underlying trial").

Many, if not most, courts take this balancing approach.

• Akagi v. Turin Hous. Devs. Fund Co., No. 13 Civ. 5258 (KPF), 2017 U.S. Dist. LEXIS 41321, at *27-28 (S.D.N.Y. Mar. 22, 2017) (finding that a joint defense agreement consent did not prevent a law firm's disqualification, because it covered only later adversity rather than a concurrent conflict of interest; "Local rules of professional conduct also play a limited role in the attorney- disqualification calculus. 'Federal courts adjudicating questions involving the ethics of attorneys,' including questions concerning disqualification, 'look to the local rules of professional conduct for guidance.'. . . But rules of professional conduct 'merely provide' just that: 'general guidance.'. . . And in turn, 'not every violation of a disciplinary rule will necessarily lead to disqualification.'" (emphasis added)).

• Mayers v. Stone Castle Partners, LLC, 1 N.Y.S.3d 58, 61, 62 (N.Y. App. Div. 2015) (declining to disqualify the law firm of Quinn Emanuel under New York Rule 1.18; "A movant seeking disqualification of an opponent's counsel bears a heavy burden . . . . A party has a right to be represented by counsel of its choice, and any restrictions on that right 'must be carefully scrutinized' . . . . This right is to be balanced against a potential client's right to have confidential disclosures made to a prospective attorney subject to the protections afforded by an attorney's fiduciary obligation to keep confidential information secret . . . . Courts should also examine whether a motion to disqualify, made during ongoing litigation, is made for tactical purposes, such as to delay litigation and deprive an opponent of quality representation . . . .

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The decision of whether to grant a motion to disqualify rests in the discretion of the motion court."; "[D]isqualification is not warranted because the conveyed information did not have the potential to be significantly harmful to Mayers in the matter from which he seeks to disqualify counsel. The affidavits and the parties' respective pleadings establish that Mayers's plans with regard to the Tropic IV investment had been made generally known, and Mayers even attests that SCP, Siegel and Shilowitz were cognizant of his Tropic IV investment purchase via his wholly owned entity (at the SCP auction of Tropic IV preferred shares), that they knew of his investment strategy, and that he had offered them an opportunity to participate in the investment. Mayers did not meet the heavy burden he bore as a prospective client seeking to disqualify Quinn Emanuel, a year into the litigation, from representing the SCP parties." (emphases added)).

• Foster v. U.S. Bank Nat'l Ass'n, Civ. A. No. 3:13-cv-51, 2014 U.S. Dist. LEXIS 30017, at *6 (W.D. Va. Mar. 7, 2014) (declining to disqualify Williams Mullen, which had represented the plaintiff in 2006 in a matter related to an easement, and was now representing a bank in foreclosing on the same property; "Given the high standard of proof Foster must meet in a motion to disqualify, and the strong public interest in a party's right to freely choose counsel, I do not find that disqualification of Williams Mullen is warranted in this case.").

• Alzheimer's Institute of Am., Inc. v. Avid Radiopharmaceuticals, Civ. A. No. 10-6908, 2011 U.S. Dist. LEXIS 140345, at *18, *26-27, *27, *27-28, *30 (E.D. Pa. Dec. 7, 2011) (declining to disqualify the law firm of Bryan Cave, although it faced a conflict of interest in continuing to represent its client the Alzheimer's Institute of America after intervention in the lawsuit by the South Florida Board of Trustees, which Bryan Cave represented on unrelated intellectual property matters; explaining the choice of laws issue for the disqualification; after concluding that Pennsylvania rather than California ethics rules apply, finding that the Pennsylvania rules require a balancing of interests in the disqualification motion; "[U]nder Rule 1.16(c), the court can order a lawyer to continue to represent a client even if doing so would otherwise violate a disciplinary rule. Pa. Rules of Prof.l Conduct R. 1.16(c)."; "In summary, the Pennsylvania standard calls for a balancing of the concerns addressed in Local Rule 5.1(c) and Pennsylvania Rules of Professional Conduct 1.7 and 1.16 to determine whether good cause exists to permit the withdrawal. The factors to weigh include the potential prejudice that the proposed withdrawal will cause the clients, lawyers and the other parties to the lawsuit, the delay to the proceedings and the harm to the administration of justice."; noting that Bryan Cave had served for two and a half years as AIA's counsel in the case, and had spent more than 7,200 hours representing AIA; also finding that USF would not be prejudiced by Bryan Cave's continued involvement for AIA after USF's intervention; "USF expressly concedes that it

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cannot identify 'any specific or material harm that USF has suffered or will suffer' as a result of Bryan Cave continuing to represent AIA in these patent infringement actions."; "The perception of betrayal alone does not require withdrawal."; "USF stipulated that Bryan Cave did not and will not receive any confidential information from USF as a result of its representation of USF that would be relevant or material to this case. . . . Indeed, the matters in which Bryan Cave is representing and has represented USF are unrelated to this litigation or any other litigation brought by AIA."; also noting that Bryan Cave had imposed an ethics screen; concluding that Bryan Cave could not have foreseen USF's intervention; "[B]ecause USF never claimed ownership of the inventions, it was reasonable for Bryan Cave to believe that there was no conflict with USF and no need to run a conflict check as to USF when it brought the patent infringement actions. USF's potential interest did not become apparent until our ruling on the cross-motions for summary judgment.").

• Am. Int'l Group, Inc. v. Bank of Am. Corp., No. 11 Civ. 6212 (BSJ), 2011 U.S. Dist. LEXIS 141012, at *9, *10, *11, *11-12, *12, *12-13, *14-15 (S.D.N.Y. Dec. 6, 2011) (declining to disqualify the law firm of Quinn Emanuel from representing AIG in a lawsuit against Bank of America; "Disqualification is disfavored in this Circuit and, as a result, the party seeking it must meet a high standard of proof before it is granted."; "Courts will presume that the attorney shares his confidences with the firm, and so an attorney's successive representation risks disqualification of his firm as well. . . . In the Second Circuit, however, the confidence-sharing presumption is rebuttable."; "One method of rebutting the presumption is by demonstrating a timely and effective ethical screen 'that fences the disqualified attorney from the other attorneys in the firm' in connection with the case for which the conflict is alleged."; "Quinn's screening procedure was imperfect, without question. Quinn admits that it failed to realize a potential conflict until Defendants asserted one, on September 19, 2011. Because Quinn was unaware of the conflict until September, Becker was asked to review and comment on the draft complaint and draft motion to remand. However, flawed screens-including late screens-are not fatal. In particular, screens erected immediately upon discovery of the conflict weigh against disqualification."; "Quinn erected an ethical screen within 24 hours of receiving notice of a conflict."; "[T]he Court finds that for several reasons Plaintiffs have rebutted the presumption that confidences were shared before the screen was erected. For one, Becker did not bring any confidential documents or files from Munger to Quinn, so there is 'no chance' that Quinn attorneys could have seen any."; "Also, as proof that no confidences were shared orally, Plaintiffs submit affidavits from all Quinn timekeepers who clocked more than 50 hours on the case swearing that no confidences were sought or received from Becker."; "Anyone else who recorded less than 50 hours on the case also confirmed that no confidences were sought or received. . . . And all

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temporary attorneys on the case have confirmed to the supervising associate that they have never communicated with Becker. . . . Not only has Becker sworn that he did not share any confidences, he further avers that he recalls his previous work on the First Franklin matter only at a high level of generality, and that he does not remember confidential information of First Franklin or Merrill Lynch."; "Lastly, the Court finds it unlikely that Becker inadvertently disclosed confidences before the screen was initiated given the 'de facto separation' that existed between him and the case. . . . As a partner in the London office, Becker was physically separated from the case. . . . Additionally, he was electronically separated from the case. An electronic audit of the Quinn document management system revealed that the only two documents Becker accessed on the system related to the AIG action were two mark-ups of the remand brief. . . . Becker never sought or obtained access to the folder relating to the action, which is maintained on a separate drive. . . . Finally, the Court notes that Quinn is a law firm with over 500 attorneys. Its 'large size makes the risk of inadvertent disclosures of confidences less likely.'" (citation omitted)).

• Morin v. Maine Education Association, 993 A.2d 1097, 1099, 1100 (Me. 2010) ("Morin [labor advocate and board member of the Maine Education Association] testified that Edelman [lawyer who conducted an investigation of Morin's complaint about a "hostile and discriminatory work environment"] represented to her that her statements made during the interview would remain confidential and would not be shared with the Association. Morin's attorney testified that she would have been more 'guarded' during the interview if she had known that Bredhoff & Kaiser might later represent the Association, and that she would not have offered her opinion to Edelman as to litigation strategy or settlement terms. Edelman testified, in contrast, that he explained to Morin that the details of his investigation would remain confidential 'to the extent that's practical, given the investigation, or the extent consistent with the . . . pursuit of the investigation,' but that he would describe the nature of Morin's complaint to the Association. After concluding his investigation, Edelman substantiated Morin's allegation of discrimination."; declining to disqualify the lawyer who conducted the investigations; "[W]e require a showing that continued representation by the attorney would result in actual prejudice to the party seeking that attorney's disqualification. . . . [C]ourts will not assume the existence of prejudice to the moving party just by the mere fact that an ethical violation was committed, even when that ethical violation involves confidential communications. . . . A mere general allegation that the attorney has some confidential and relevant information he gathered in the previous relationship will not support disqualification. . . . Rather, the moving party must point to the specific, identifiable harm she will suffer in the litigation by opposing counsel's continued representation. Indeed, to allow disqualification with proof of anything less than such actual prejudice would

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be to invite movants to employ this 'obvious vehicle for abuse.'" (emphasis added; citations omitted)).

• Wyeth v. Abbott Labs., 692 F. Supp. 2d 453, 458, 459, 459-60, 460 (D.N.J. 2010) (reversing a trial court's disqualification of Howrey LLP from representing a client adverse to Wyeth, because Howrey represented Wyeth in an ongoing patent matter, and was not representing another long-standing Howrey client against Wyeth in a patent infringement case pending in the District of New Jersey; noting that the District of Delaware found that Howrey's handling of a matter adverse to Wyeth was a Rule 1.7 violation, but declining to disqualify Howrey; explaining that "[w]hen presented with a motion to disqualify counsel, a court must strike a 'delicate balance' between the competing considerations. . . . On the one hand, the Court must examine the potential hardships that one party will experience if his lawyer is disqualified. On the other, the Court must weigh the potential hardships to the adversary if counsel is permitted to proceed."; finding that the Magistrate Judge improperly applied a per se test instead of balancing factors; "Here, the Court finds that the Magistrate Judge, by applying an automatic disqualification rule, failed to undertake the necessary factual analysis and weigh the relevant factors before disqualifying Howrey from representing BSC [Boston Scientific Corp.] in this case. As such, the decision is erroneous and shall be set aside."; ultimately concluding that Howrey had violated Rule 1.7, but declining to disqualify the law firm; "Factors that this Court should consider in determining whether disqualification is warranted include: (1) prejudice to Wyeth; (2) prejudice to BSC; (3) whether's [sic] Howrey's representation of Wyeth in the Lonza matter has allowed BSC access to any confidential information relevant to this case; (4) the cost -- in terms of both time and money -- for BSC to retain new counsel; (5) the complexity of the issues in the case and time it would take new counsel to acquaint themselves with the facts and issues; (6) which party, if either, was responsible for creating the conflict."; "First, the substance of the two matters are completely unrelated. . . . Second, no Howrey personnel overlap on the two matters. . . . Third, as the matters are unrelated, Wyeth is unable to identify any confidential information accessible to Howrey in one case that could be used in the other. . . . Fourth, the Lonza matter has been dormant since November, 2008."; "According to BSC, Howrey has served as one of BSC's primary litigation counsel in matters relating to the stent products and technology at issue in this case for more than a decade. . . . Over approximately the past ten years, Howrey lawyers have billed an average of almost 14,000 hours per year on scores of different matters for BSC. . . . Given Howrey's historical representation and the complex technologies at issue in this case, depriving BSC of its counsel of choice deprives BSC of Howrey's depth of experience and expertise. Additionally, if BSC were required to obtain new counsel, there would likely be some delay in this litigation as well as certain additional costs incurred by BSC while new

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counsel familiarized itself with this case. In contrast, Wyeth has not identified any prejudice that it will suffer if Howrey is not disqualified from this matter."; "Given the different rules that apply across jurisdictions (national and international), when a global law firm such as Howrey undertakes to represent an entity that is part of large multi-national organization like Wyeth, counsel should take due care in identifying and confirming with the client at the outset of the representation exactly which entity is being represented. Apparently, that was not done here by Howrey. Because both parties contributed to creating the existing conflict, this factor weighs neither for nor against disqualification.").

• Air Prods. & Chemicals, Inc. v. Airgas, Inc., Civ. A. No. 5249-CC, 2010 Del. Ch. LEXIS 35, at *6, *7, *8, *8-9, *9 (Del. Ch. March 5, 2010) (not for publication) (declining to disqualify Cravath, Swaine & Moore; "[W]here a case is filed in the Court of Chancery involving Delaware entities represented by out-of-state lawyers, and a request is made to disqualify a lawyer in that case, that would obviously have an immediate effect on the litigation. I hold that the Court of Chancery has an obligation and the right to apply its own local rules in order to ultimately determine whether a particular lawyer or particular law firm may represent a client appearing before the Court of Chancery."; "Before this Court may enter the Draconian order of disqualification, a moving party seeking that drastic relief must come forward with clear and convincing evidence establishing a violation of the Delaware Rules of Professional Conduct so extreme that it calls into question the fairness or the efficiency of the administration of justice."; "Nothing before me shows that Cravath had access to or learned internal and non-public confidential information, corporate strategies or defense tactics during the course of its narrowly focused work for Airgas from 2001 until late October of 2009, or that such information, even if available to Cravath, would prejudice the fairness or the integrity of this proceeding."; "The evidence presented to me indicates that Cravath's work for Airgas between 2001 and 2009 was limited in scope and nature, confined to advising Airgas regarding the completion of debt financings, and involved neither contact nor advice regarding corporate governance, litigation matters, charter or by-law issues, merger and acquisition advice, defensive tactics or corporate counseling."; "Cravath did not counsel or meet with the most senior Airgas executives or the Airgas board of directors, and Airgas, in fact, had other long-standing counsel advising it on litigation, corporate governance and mergers and acquisition issues."; "What's more, even if Cravath had access from its earlier representation to information that might be relevant in this proceeding, it has represented to this Court that it has no intention of using such information, and as is customary, Cravath has erected an ethical wall to seal off those members of the firm who worked on the Airgas debt financings from those members of the firm working on the Air Products proposed business combination with Airgas.").

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• Murray v. Metro. Life Ins. Co., 583 F.3d 173, 178 (2d Cir. 2009) ("[T]he showing of prejudice is required as a means of proving the ultimate reason for disqualification: harm to the integrity of the judicial system. . . . [D]isqualification by imputation should be ordered sparingly, . . . and only when the concerns motivating the rule are at their most acute.").

• Boston Scientific Corp. v. Johnson & Johnson Inc., 647 F. Supp. 2d 369, 371, 374, 374-75 (D. Del. 2009) (declining to disqualify Howrey from representing another client adverse to Wyeth, although finding that Howrey had improperly taken a matter adverse to Wyeth; explaining that "Howrey ha[d] handled several matters for the Wyeth family of companies. (DX 31 (timekeeper sheet showing Howrey's hours billed to 'Wyeth Pharmaceuticals' on various matters between 2003 and sometime in 2009)). In handling these matters, it has not always been clear which Wyeth entity Howrey has been representing. . . . While Howrey attorney Carreen Shannon, the drafter of the letters, declares that she understood her client to be 'Wyeth Pharmaceuticals,' the letters she drafted were '[o]n behalf of Wyeth, including Wyeth Pharmaceuticals B.V.'"; noting that Howrey's internal system listed many different billing addresses for a number of Wyeth entities; concluding that Howrey had violated Rule 1.7 by taking a matter adverse to a current client; "The record here does not contain any express agreements evidencing any current attorney-client relationship between Howrey and Wyeth. The record, however, does support the conclusion that it is reasonable for Wyeth to believe that Howrey has been acting on its behalf with respect to the currently-active Lonza matter. . . . Howrey went to Wyeth to seek permission to represent Lonza Biologics, PLC, in an unrelated matter; because Howrey would have needed Wyeth's permission only if Wyeth were Howrey's client in the Lonza matter, it is reasonable for Wyeth to believe, from Howrey's overture, that it is in fact the client in the Lonza matter. For at least these reasons, then, Wyeth's behalf as to its status as a client of Howrey is reasonable, and since the Lonza matter is still active, there is a current attorney-client relationship between Howrey and Wyeth. Accordingly, Howrey's representation of plaintiffs in the instant suits violates Model Rule 1.7."; nevertheless declining to disqualify Howrey; "[T]he instant suits are unrelated to the Lonza matter; Howrey's Washington, D.C.- based attorneys are handling the instant suits, while its Europe-based attorneys continue to handle the Lonza matter; there is an ethical wall between the two matters -- leads to the same conclusion."; rejecting the concept that a ethics rule violation should automatically result in disqualification; "'In the Third Circuit, and under this court's precedent, whether disqualification is appropriate depends on the facts of the case and is never automatic."; attributing part of the fault to Wyeth; "Moreover, Howrey's failure to comply with Model Rule 1.7 is, to a significant degree, due to Wyeth's conduct. Among other things, Wyeth's naming conventions, its use of the same in-house attorneys on matters involving different subsidiaries without consistently identifying to Howrey which entity those in-house

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attorneys were representing, and the willingness of it and its subsidiaries to receive billing invoices for matters on which they were not directly engaged with Howrey, together created significant confusion for Howrey as to which entity or entities it was representing, confusion which is evident from Howrey's time sheets, its mailing of billing invoices, and the averments of its attorneys in Europe. Wyeth should not now benefit from such obfuscatory conduct. Accordingly, the court declines to disqualify Howrey from the instant suits and instead orders Howrey to maintain its ethical wall.").

Upon reflection, this approach makes sense. The conflicts analysis focuses on the relationship between the client and the lawyer, while disqualification motions involve a number of other interests, including the client's right to hire a lawyer of its choosing, the court's docket, etc.

Not surprisingly, law firms generally cannot avoid disqualification by screening individually disqualified lawyers.

• Acad. of Allergy & Asthma in Primary Care v. La. Health Serv. & Indem. Co., 384 F. Supp. 3d 644, 653 (E.D. La. 2018) (disqualifying Baker Donelson from representing the Louisiana Blue Cross Blue Shield entity in an antitrust case brought by the firm’s former client; rejecting the notion that screening individually disqualified lawyers in a firm would cure a conflict in such a situation; “[E]vidence that a firm has carefully screened a conflicted attorney and that no confidential information has been shared between attorneys in the conflicted attorney’s firm is irrelevant.”).

(b) Both the ABA Model Rules and the Restatement have abandoned the

"appearance of impropriety" standard for defining a conflict or disqualifying a law firm, because of its inherently ambiguous meaning. Restatement (Third) of Law Governing

Lawyers § 121 cmt. c(iv) (2000) (rejecting the "appearance of impropriety" standard; noting that the standard "could prohibit not only conflicts as defined in this Section, but

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also situations that might appear improper to an uninformed observer or even an interested party").1

• City of Atlantic City v. Trupos, 992 A.2d 762, 772 (N.J. 2010) (noting that in the "2004 overhaul of the Rules of Professional Conduct . . . we eliminated the 'appearance of impropriety' language from the Rules of Professional Conduct" (internal quotations and citation omitted)).

• Gabayzadeh v. Taylor, 639 F. Supp. 2d 298, 305 (E.D.N.Y. 2009) ("Plaintiff's final argument is that Proskauer should be disqualified under Canon 9 of the ABA Model Code to 'avoid even the appearance of impropriety.' (P1.'s Mem. of Law in Supp. of Mot. to Disqualify 2.) 'The Second Circuit has repeatedly warned, however, that Canon 9, standing alone, does not warrant attorney disqualification in this Circuit.' Bass Pub. Ltd. Co. v. Promus Co. Inc., No. 92- CIV-0969, 1994 U.S. Dist. LEXIS 136, 1994 WL 9680, at *9 (S.D.N.Y. Jan. 10, 1994) (citing Int'l Elecs. Corp. v. Flanzer, 527 F.2d 1288, 1295 (2d Cir. 1975)) (additional citations omitted). Canon 9 'should not be used promiscuously as a convenient tool for disqualification when the facts simply do not fit within the rubric of other specific ethical and disciplinary rules.' Flanzer, 527 F.2d at 1295. . . . Given that the plaintiff's asserted grounds for disqualification are devoid of substance, merely relying on Canon 9 is insufficient to warrant the disqualification of Proskauer in this action.").

• Fred Weber, Inc. v. Shell Oil Co., 566 F.2d 602, 609 (8th Cir. 1977).

However, many courts continue to apply the "appearance of impropriety" standard when assessing disqualification motions.2

• Charles Toutant, State Appeals Court Oks Disqualification of Lawyer Over Conflict of Interest, N.J.L.J., July 16, 2019 ("A New Jersey appeals court has ruled that a lawyer who represents criminal defendants in Sussex County is disqualified from representing the sheriff in a civil suit against the county’s

1 Restatement (Third) of Law Governing Lawyers § 121 cmt. c(iv) (2000) ("This Section employs an objective standard by which to assess the adverseness, materiality, and substantiality of the risk of the effect on representation. The standard of this Section is not the 'appearance of impropriety' standard formerly used by some courts to define the scope of impermissible conflicts. That standard could prohibit not only conflicts as defined in this Section, but also situations that might appear improper to an uninformed observer or even an interested party."; "The propriety of the lawyer's action should be determined based only on facts and circumstances that the lawyer knew or should have known at the time of undertaking or continuing a representation. It should not be evaluated in light of information that became known only later and that could not reasonably have been anticipated.").

2 See, e.g., United States. v. Franklin, 177 F. Supp. 2d 459 (E.D. Va. 2001); Dacotah Marketing & Research, L.L.C. v. Versatility, Inc., 21 F. Supp. 2d 570 (E.D. Va. 1998).

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freeholder board."; "The appeals court affirmed a trial judge’s ruling disqualifying attorney George Daggett from representing Sussex County Sheriff Michael Strada. The panel rejected Daggett’s reasoning that the Supreme Court’s elimination of the appearance of impropriety standard in 2003 should alter the application of Rule 1:15, which sets limitations on the practices of attorneys."; "The appearance of impropriety standard held that, even in the absence of actual conflict of interest, an attorney may be precluded from representing a particular client if the representation creates an appearance of impropriety."; "Daggett filed a suit on behalf of Strada in April 2018, claiming that Freeholders George Graham, Jonathan Rose and Carl Lazzaro and County Treasurer Robert Maikis were improperly interfering with the day-to-day operation of his department, creating a hostile work environment and violating the Conscientious Employee Protection Act. The county defendants moved to disqualify Daggett, arguing that Rule 1:15-3(a) bars him from representing Strada while also handling criminal matters in the same county. Judge Robert Ballard in Somerset County Superior Court, where the case was moved to avoid a conflict in Sussex County, granted the motion to disqualify Daggett in August 2018. Daggett appealed."; "Ballard disqualified Daggett based on Rule 1:15-3(a), which says that an attorney who is a sheriff or county prosecutor, or an attorney who is in the employ or service of such an official, 'shall not practice on behalf of any defendant in any criminal, quasi-criminal or penal matter, whether judicial or administrative in nature,' and 'an attorney who is a sheriff of any county or in the sheriff’s employ' shall not practice in any court in that county.").

• Andrew Strickler, Expired Atty Conflict Rule Won't Die Easily, Ill. Case Shows, Law360, Apr. 5, 2017 ("A recent Illinois appellate court decision addressing a lower court’s use of the 'appearance of impropriety' standard to justify an attorney’s disqualification illustrates that lawyers still have to be on the lookout for the beleaguered concept being used by judges, even though it was officially removed from lawyer conduct rules 15 years ago, experts say."; "Reversing a trial court's removal of a defense lawyer from a dispute between onetime domestic partners, a state appellate panel found fault with the disqualification because it was based on the mere appearance that the lawyer's previous work for the couple was ethically problematic. Instead, such decisions should be based on a fact-focused and less subjective test than appearance, the panel found.").

Best Answer

The best answer to (a) is MAYBE; the best answer to (b) is MAYBE.

N 3/12

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Disqualification -- Process and Effect

Hypothetical 37

For the past year, you and local counsel in another city have been defending a corporate client and one of its executives in a covenant-not-to-compete case. You were surprised to receive a call this morning from local counsel, advising you that the adversary had just filed a motion to disqualify that firm based on its alleged conflict caused by its representation of both the company and the executive. The motion claims that representing both defendants creates an inherent and insoluble conflict. A few questions come quickly to your mind.

(a) May you argue that your adversary does not have standing to pursue a disqualification motion?

(A) YES

(B) NO

MAYBE

(b) May you argue that the disqualification motion is barred by the doctrine of laches?

(A) YES

(B) NO

MAYBE

(c) If your adversary succeeds in disqualifying your co-counsel, will you also automatically be disqualified?

(A) YES

(B) NO

(B) NO (PROBABLY)

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Analysis

(a) Courts differ on the conflict of standing to seek an opposing counsel's disqualification.

Some courts indicate that only the client that might be hurt by the conflict may seek a lawyer's disqualification based on a concept.

• Lerner & Veit, PC v. Power, No. A148439, 2018 Cal. App. Unpub. LEXIS 4951, at *11, *12, *13, *14 (Cal. Ct. App. July 18, 2018) (holding that a law firm did not have standing to seek disqualification of an adversary's law firm in an unpaid fees dispute based on the opposing lawyer's earlier representation of a law firm partner; “As a threshold matter, L&V did not have standing to move to disqualify TWSG or Rowen because the undisputed facts show it was never their client.”; “This fundamental prerequisite to a disqualification motion is often expressed in terms of 'standing.'“; “Here, it is undisputed that L&V had no attorney-client relationship with TWSG. TWSG and Rowen previously represented Lerner in his individual capacity as trustee of a family trust. They did not represent L&V, Lerner's law firm, which was not a party to the trust litigation. L&V's contention that the distinction between an individual shareholder of a professional corporation and the corporation itself is 'a distinction without a difference' or 'a mere technicality' is meritless. To the contrary, the distinction is a fundamental one that often can be determinative of the existence and scope of an attorney-client relationship, as it is here.”; “Thus, that Lerner is a shareholder or even the sole remaining shareholder of the L&V law firm does not give L&V, which is a separate legal entity, standing to object to TSWG's representation of Power.”).

• Kennedy v. Eldridge, 135 Cal. Rptr. 3d 545 (Cal. Ct. App. 2011) (disqualifying a lawyer from representing his son in a custody dispute brought by his son's former wife; "[W]hile federal courts generally limit standing to bring disqualification motions to clients or former clients (see Vapnek et al., Cal. Practice Guide: Professional Responsibility . . . ), in California 'where the ethical breach is "manifest and glaring" and so "infects the litigation in which disqualification is sought that it impacts the moving party's interest in a just and lawful determination of [his or] her claims" [citation], a nonclient might meet the standing requirements to bring a motion to disqualify based upon a third party conflict of interest or other ethical violation.' . . . Case law abounds with examples of orders disqualifying counsel that have been the product of motions by present or former clients." (alterations in original) (emphasis added)).

• SEC v. Tang, No. C-09-05146 JCS, 2011 U.S. Dist. LEXIS 136188, at *29, *34-35 (N.D. Cal. Nov. 28, 2011) (finding that the SEC did not have standing

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to disqualify a law firm from representing the defendant; "Because motions to disqualify are often tactically motivated, they are strongly disfavored and are subjected to 'particularly strict judicial scrutiny.'"; "This court finds the reasoning of Colyer [Colyer v. Smith, 50 F. Supp. 2d 966 (C.D. Cal. 1999)] to be persuasive and therefore applies the majority rule that generally, a party seeking disqualification based on a conflict must be or have been a client. Further, having carefully reviewed the cases that have applied that rule -- as well as those that have invoked the exception -- the Court concludes that the facts here do not establish standing on the part of the SEC. Courts have invoked the exception in Colyer where particular facts have established that the party seeking disqualification had a personal stake beyond the general interest in the fair administration of justice. For example, in Decaview [Decaview Dist. Co. v. Decaview Asia Corp., No. C 99-02555 MJJ (ME), 2000 U.S. Dist. LEXIS 16534 (N.D. Cal. Aug. 14, 2000)] cited by the SEC, the party seeking disqualification had a personal interest because the counsel whose disqualification was sought had confidential information of the moving party in its possession. The Court has found no case that is factually on point with this case, where the only personal stake offered by the SEC is its interest in the integrity of the legal system. Accordingly, the Court concludes that the exception in Colyer does not apply and that under the general rule articulated in that case, the SEC does not have standing to bring a motion to disqualify based on the alleged conflicts arising out of Fenwick's former representation of Yu.").

• IMCO, L.L.C. v. Ford, No. C 11-01640 WHA, 2011 U.S. Dist. LEXIS 124535, at *4-5, *5, *6, *6-7 (N.D. Cal. Oct. 27, 2011) (holding that a plaintiff did not have standing to seek disqualification of a city attorney, because the plaintiff was not owed any fiduciary or other duty by the lawyer; "The general rule adopted in the Fifth, Third, and Eighth Circuits is that an attorney cannot be disqualified unless a current or former client moves for disqualification."; "Two circuits have adopted a minority view, finding non-clients to have standing to disqualify based on an ethical violation."; "The issue has not directly been addressed in the Ninth Circuit."; "California law follows the general rule that a party lacks standing to disqualify an attorney unless that party has a present or past attorney-client relationship with that attorney."; "The majority of circuits, as well as California courts, demand some sort of attorney-client or fiduciary relationship before a party can move to disqualify an attorney. IMCO does not now, nor ever had in the past, an attorney-client relationship with the City Attorney. IMCO does not allege to have had any fiduciary relationship with the City Attorney, nor that a duty of confidentiality was ever owed.").

• Great Lakes Constr., Inc. v. Burman, 114 Cal. Rptr. 3d 301, 303, 307 & n.5, 309 (Ca. Ct. App. 2010) (holding that an adversary did not have standing to seek disqualification of a lawyer who allegedly had a conflict of interest in jointly representing two litigants; "Attorneys who jointly represent clients in the

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same action owe a duty of undivided loyalty to each of their clients and are subject to disqualification if an unwaivable conflict exists arising from the joint representation. We address whether a non-client may enforce this duty of loyalty and move to disqualify opposing counsel. In this case, the parties seeking disqualification were not present clients, former clients, or prospective clients, and they had no prior confidential relationship with opposing counsel. . . . Here, the non-client, moving parties have no legally cognizable interest in Graham's [lawyer] undivided loyalty to his clients. Therefore, the moving parties lacked standing to bring this motion to disqualify. We reserve the disqualification order."; "The State Bar Rules of Professional Conduct govern attorney discipline, not standards for disqualification in the courts. . . . We often look to the Rules of Professional Conduct for guidance."; "Generally, before the disqualification of an attorney is proper, the complaining party must have or must have had an attorney-client relationship with that attorney."; "[I]mposing a standing requirement for attorney disqualification motions protects against the strategic exploitation of the rules of ethics and guards against improper use of disqualification as a litigation tactic.").

• Simonca v. Mukasey, No. CIV. S-08-1453 FCD GGH, 2008 U.S. Dist. LEXIS 101969, at *8, *11 (E.D. Cal. Nov. 25, 2008) ("Although the Ninth Circuit has not squarely addressed whether a non-client may raise an objection to opposing counsel, the court in Colyer adopted the majority rule that allows only former and current clients standing to seek to disqualify opposing counsel."; "Thus, it is defendants [sic] ultimate burden to show they have standing to raise the issues in their disqualification motion in order for the court to exercise jurisdiction over the motion. . . . Accordingly, the court must consider whether defendants have demonstrated an injury in fact, that they will endure, as opposed to plaintiff, as a result of Sekhon's representation of plaintiff and the proposed class in this action.").

• Xcentric Ventures, LLC v. Stanley, No. CV-07-00954-PHX-NVW, 2007 U.S. Dist. LEXIS 55459, at *11 (D. Ariz. July 27, 2007) (holding that defendants did not have standing to move for plaintiff's lawyer's disqualification based on conflicts; pointing to earlier Ninth Circuit cases allowing disqualification motions based on conflicts only if the client or former client complains; holding that the "present Motion failed to articulate how Plaintiffs' representation will imminently result in any injury to Defendants and is transparently motivated by tactical considerations").

• In re Appeal of Infotechnology, Inc., 582 A.2d 215, 221 (Del. 1990) (declining to adopt a "bright-line" test "denying standing to all non-client litigants to challenge misconduct that taints the fairness of judicial proceedings," but placing the burden of proof on the moving party to show existence of a conflict and how the conflict would adversely affect the administration of justice; holding that "[a]bsent misconduct which taints the proceeding, thereby

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obstructing the orderly administration of justice, there is no independent right of counsel to challenge another lawyer's alleged breach of the Rules outside of a disciplinary proceeding").

Other courts explain that conflicts of interest implicate systemic and institutional concerns, and therefore address conflicts issues when they are raised by any party, or even by the court sua sponte.

• Muniz v. Re Spec Corp., 230 F. Supp. 3d 147, 154 (S.D.N.Y. 2017) (holding that a lawyer can represent employees and a manager in a wage-and-hour case, even though the former could theoretically make a claim against the latter; declining to disqualify the lawyer; "Preliminarily, it should be noted that the conflict posited by defendants affects only Gonzalez and the current plaintiffs – who would also be the only parties disadvantaged by any 'soft- pedaling' of the Firm's zeal. In plaintiff's view, therefore, defendants have no standing to raise the issue. . . . The federal courts, however, generally take the view that any party to a lawsuit may raise a potential conflict. . . . For this reason, the Court will not deny the motion on standing grounds. However, the fact that the alleged Rule 1.7(a) conflict would not adversely affect the moving defendants may shed light on whether the motion is a 'tactical device,' . . . designed primarily to disrupt plaintiffs' case rather than to preserve the integrity of the adversary process." (emphasis added)).

• Foley-Ciccantelli v. Bishop's Grove Condo. Ass’n, 797 N.W.2d 789, 794 (Wisc. 2011) (holding that non-clients may have standing to seek disqualification of the adversary's lawyer; "We address the first question relating to standing in light of our analysis of the standing cases. We conclude that as a general rule only a former or current client has standing to move to disqualify an attorney from representing someone else in a civil action. Nevertheless, a non-client party may establish standing, that is, may establish that a personal interest in the controversy is adversely affected and that judicial policy calls for protection of that interest, when the prior representation is so connected with the current litigation that the prior representation is likely to affect the just and lawful determination of the non-client party's position.").

• Chisolm v. Transouth Fin. Corp., A. No. 2:93cv632, 2000 U.S. Dist. LEXIS 8483 (E.D. Va. May 12, 2000) (disqualifying a former judge from participating in a case; not imputing his disqualification to the law firm of Hunton & Williams).

Not surprisingly, clients who have fired a law firm for improperly taking a matter adverse to it may still seek the firm's disqualification.

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• Wal-Mart Stores, Inc. v. Vidalakis, Case No. 07-0039, 2007 U.S. Dist. LEXIS 99356, at *5-6, *9 (W.D. Ark. Dec. 17, 2007) (analyzing a situation in which defendants served a subpoena on non-party Wal-Mart and some of its employees in an action in which Wal-Mart might ultimately be accused of conspiring with plaintiffs in a property issue; treating Wal-Mart as a current client of defendant's law firm, even though Wal-Mart admitted firing the law firm before seeking to disqualify it; "Wal-Mart contends that the Calfee firm should be disqualified from representing the Defendants due to their long- standing attorney-client relationship with Wal-Mart. It alleges that since 2001, Wal-Mart has retained the Columbus office of the Calfee firm to assist them with regard to at least seventy-eight legal matters, seventy-seven of which are environmental or real estate related cases. Although Wal-Mart is not a party to the present litigation, it contends that the Defendants have insinuated that Wal-Mart might have conspired with the Plaintiff regarding this matter. While Wal-Mart admits that it had severed its relationship with the Calfee firm just prior to filing this motion, it contends that it was a current client of the Calfee firm at the time the discovery requests were served. As such, it is Wal-Mart's position that the Calfee firm is representing clients whose interests are directly adverse to one another and that Rule 1.7 of the Arkansas Model Rules of Professional Conduct applies to this matter."; "For the purposes of a disqualification analysis, a client should be considered an 'existing client' of the attorney if there was an ongoing attorney-client relationship at the time the complaint was filed, even if the attorney-client relationship concludes prior to the filing of the motion to disqualify."; ultimately declining to disqualify the defendants' law firm, but allowing it to arrange for co-counsel to handle a discovery dispute against Wal-Mart (emphasis added)).

(b) As with the issue of standing, courts take differing positions on the availability of a laches defense in disqualification motions.

At least one court focused on the systemic issues in declining to recognize a laches defense.

• KABI Pharmacia AB v. Alcon Surgical, Inc., 803 F. Supp. 957, 964 (D. Del. 1992) ("[I]t is generally established that laches is not a bar to a motion to disqualify since a court's supervision of the ethical conduct of attorneys practicing before it is designed to protect the public interest and not merely the interest of the particular moving party." (citation and internal quotations omitted); disqualifying a law firm despite the fact that the motion to disqualify was filed one year after the conflict manifested itself, and near the conclusion of discovery).

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In contrast, Restatement takes the position that a party's delay in seeking disqualification can affect the court's conclusion.

Even in the absence of consent, a tribunal applying remedies such as disqualification . . . will apply concepts of estoppel and waiver when an objecting party has either induced reasonable reliance on the absence of objection or delayed an unreasonable period of time in making objection.

Restatement (Third) of the Law Governing Lawyers § 122 cmt. (c)(i).

Some courts found that the moving party had acted promptly enough.

• P&L Dev. LLC v. Bionpharma Inc., No. 1:17CV1154, 2019 U.S. Dist. LEXIS 13878, at *9-10 (M.D.N.C. Jan. 29, 2019) (finding that a delay of several months in filing a motion to disqualify did not justify denying a motion; “Undue delay filing a motion to disqualify after the commencement of suit can be considered a waiver of the conflict of interest. See, e.g., Rohm & Haas Co. v. Am. Cyanamid Co., 187 F. Supp. 2d 221, 231 (D.N.J. 2001) (finding waiver where two years and five months had passed between the commencement of suit and filing of the motion to disqualify and citing other federal courts finding waiver after delays of thirteen months, fifteen months, one year and nine months, two years, over two years, two and a half years, almost three years, and three years). Here, there was no undue delay in seeking to disqualify Cain. His November 2017 communications with Bion’s General Counsel prior to the institution of this action in no way suggest that Bion unduly delayed filing its motion to disqualify in January 2018. Furthermore, Bion moved to disqualify Cain less than three weeks after commencement of this suit . . . .”).

• Village of Tinley Park v. Connolly, No. 17 C 3271, 2018 U.S. Dist. LEXIS 26279, at *14, *14-15 (N.D. Ill. Feb. 15, 2018) (disqualifying a lawyer from adversity to a former client from whom the lawyer learned confidential information during a twenty minute phone call; “Murphey filed his appearance in this case on June 13, 2017 and the Village filed the motion to disqualify on October 20, 2017. The Village asserts that its attorneys did not become aware of Murphey's prior representation of the Village until mid-September 2017, and contacted Murphey regarding this within two weeks. After requesting that Murphey voluntarily withdraw from the case, the Village filed the present motion.”; “Murphey points to two cases where courts have denied motions to disqualify for unreasonable delay in filing the motions. In both, the delay was much more severe than the approximately four months in this case. . . . Furthermore, the delay has not in any way prejudiced Connolly's case because the parties have not filed their initial disclosures, engaged in any substantial discovery, and Connolly has not even filed an answer.

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Therefore, the Court finds the Village did not waive its right to move for disqualification.” (emphasis added)).

• Bodan v. CG RYC, LLC, Case No. 17-24530-CIV-UNGARO/O'SULLIVAN, 2018 U.S. Dist. LEXIS 42791, at *12-13 (S.D. Fla. Mar. 14, 2018) (disqualifying a law firm from adversity to a restaurant in a case that is similar to an earlier matter in which the law firm represented another restaurant owned by the same man; “Unlike the cases cited by the plaintiff, the defendants in the present case filed their motion within less than three months of service of process and approximately four months after the Zarco firm sent a letter notifying them of the violations that form the basis of the complaint. See Herrmann v. GutterGuard, Inc., 199 Fed. App'x 745, 747 (11th Cir. 2006) (affirming the district court's granting a motion to disqualify that was filed approximately three months after the plaintiffs filed their collective action). The undersigned finds that the motion to disqualify was filed with reasonable promptness and there was no waiver. The motion to disqualify is timely and should be considered on the merits.” (emphasis added)).

• FMS Inv. Corp. v. United States, 137 Fed. Cl. 99, 104 (Fed. Cl. 2018) (disqualifying the Pillsbury law firm from pursuing a bid protest against a client the law firm represented on an unrelated matter; also holding that Pillsbury violated its duty of loyalty to the client by making disparaging comments to the Washington Post about a current client; explaining that Pillsbury missed the conflict because it had not updated client names in its database; holding that the client's disqualification motion was not barred by laches; “Pillsbury's argument that Performant conveniently raised this conflict issue 'midstream' only after the parties' interests diverged and that Performant should have instead raised it at the outset of this bid protest in December 2016 is disingenuous. First, Performant was not aware that a conflict even existed until a reporter reached out to its COO asking for comment on Mr. Canni's [Pillsbury lawyer] disparaging remarks in the Washington Post in January 2018. . . . Further, Performant was not aware of the conflict beforehand because Pillsbury failed to both catch and inform Performant, one of its clients, of the conflict--yet another breach of Pillsbury's duty of loyalty to both ConServe and Performant. To accuse Performant of capitalizing on timing and waiving any conflicts issue by failing to act sooner when Performant was under no duty to identify Pillsbury's conflict in the first place is dubious, misleading, and puzzling.”).

• Stanley v. Bobeck, 2009 Ohio 5696, at ¶ 10 (Ohio Ct. App. 2009) (reversing a lower court's order disqualifying a lawyer who had represented a limited liability company from representing the company in an action brought by a member of the limited liability company; although ultimately reversing the disqualification, finding that the party seeking the disqualification had not waived the right to do so by waiting nine months to file a motion after noting

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the alleged conflict in a letter; noting that the trial was six months away, and that "no substantial discovery in the form of depositions or expert reports had been completed at that point").

• Halladay & Mim Mack Inc. v. Trabuco Capital Partners Inc., Case No. SACV 08-1138 AG (MLGx), 2009 U.S. Dist. LEXIS 97040, at *12-13, *14 (C.D. Cal. Oct. 5, 2009) (rejecting a law firm's argument that it should not be disqualified because the former client had waited too long to seek the firm's disqualification; "Even if an attorney possesses a former client's confidential information, a motion to disqualify the attorney will be denied if there has been 'unreasonable delay by the former client in making a motion and resulting prejudice to the current client.'. . . If a party opposing disqualification shows unreasonable delay and resulting prejudice, '[t]he burden then shifts back to the party seeking disqualification to justify the delay.'. . ."; "Here, Defendants moved to disqualify Murtaugh, Meyer less than a year after they were on notice of the conflict."; distinguishing cases in which the former client waited two and a half years and three years before seeking disqualification of its former law firm).

• Holm v. City of Barstow, Case No. EDCV 08-420-VAP (JCx), 2008 U.S. Dist. LEXIS 110391, at *20, *21 (C.D. Cal. Sept. 16, 2008) (rejecting a law firm's argument that its former client had waited too long to seek the firm's disqualification; "Lackie argues that Libby delayed unnecessarily in bringing this Motion."; "The Court finds Lackie's argument unpersuasive. Holm filed this action on February 29, 2008 and Libby's counsel, Mr. Meneses ('Meneses'), first raised the subject of a possible conflict of interest with Plaintiff's counsel on May 21, 2008. . . . According to Meneses' declaration, he first learned of the potential conflict of interest from his client on May 20, 2008. . . . From May until July, counsel met and conferred regarding the conflict of interest. Meneses filed his motion on August 12, 2008." (footnote omitted)).

• City of El Paso v. Soule, 6 F. Supp. 2d 616, 622 (W.D. Tex. 1998) ("The instant Motion was filed in March 1998, just after Defendants filed their answers. The Court concludes the period of time from October 1997 to March 1998 does not constitute an unreasonable delay. Thus Defendants have not waived their right to object to KGM's representation of the City.").

Some courts have pointed to the moving party's delay in denying disqualification motions.

• Eolas Techs. Inc. v. Amazon.com Inc., Case No. 17-cv-03022-JST, 2017 U.S. Dist. LEXIS 136243, at *7-8, *8 (N.D. Cal. Aug. 24, 2017) (holding that a former Latham & Watkins client could not disqualify the firm because it waited too long to seek that disqualification; “Based on the evidence above, the

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Court is convinced that Eolas knew about the Latham conflict for a year before it decided to file this motion to disqualify. And one year qualifies as an extended delay. . . . Eolas cites no case in any of its papers in which a court concluded that a one-year delay was not substantial.”; “Finally, Amazon would face substantial prejudice from Latham's disqualification. In 2016 -- the year during which Eolas knew of the alleged conflict but took no action -- Latham billed over 3,400 hours to prepare this matter for trial. . . . Although the Court has not yet set a trial date, this expenditure of time and resources weighs in favor of waiver.”).

• Freeman Equip., Inc. v. Caterpillar, Inc., 262 F. Supp. 3d 631, 636 (N.D. Ill. 2017) (declining to disqualify plaintiff's lawyer based on his alleged previous representation of the defendant; finding that defendant's six-month delay prevented the disqualification; "I now turn briefly to defendant's argument that Mr. Padden and his law firm must be disqualified based on Mr. Padden's past representation of Caterpillar. This argument merits little discussion. First, '[a] motion to disqualify should be made with reasonable promptness after a party discovers the facts which lead to the motion.' . . . All agree that defendant has been aware of Mr. Padden's involvement in this case since August of 2016, and that defense counsel has actively engaged with him as opposing counsel since that time. Defendant's explanation for its almost six-month delay in seeking disqualification – that Mr. Padden's conflict of interest became apparent only after he manifested a 'desire to delve into internal Caterpillar legal procedures' – is unsupported by reasoned analysis and does not withstand scrutiny.").

• Murray v. Metro. Life Ins. Co., 583 F.3d 173, 178, 180 (2d Cir. 2009) (denying MetLife policyholders' motion to disqualify the law firm of Debevoise & Plimpton from representing MetLife in their lawsuit against MetLife related to its demutualization; rejecting the policyholders' argument that Debevoise must be disqualified because several of its lawyers would provide testimony at the trial that would be "prejudicial" to MetLife; noting that under Second Circuit law the party advancing that argument had to prove "specifically" how the lawyer's testimony would prejudice the client, and also that the likelihood of prejudice occurring was "substantial"; pointing to policyholders' delay in seeking disqualification of Debevoise as an additional grounds for denying the disqualification motion; "[P]laintiffs' lengthy and unexcused delay in bringing its motion to disqualify weighs against disqualification. When plaintiffs filed this lawsuit in 2000, they knew that Debevoise had represented MetLife during demutualization and that it would continue to represent MetLife in this litigation. But plaintiffs did not move to disqualify even when, seven years later, the district court ruled that plaintiffs were clients of Debevoise. Instead, plaintiffs waited until after settlement negotiations broke down, five weeks before trial was scheduled to begin, to finally file their motion."; "Plaintiffs' delay, which suggests opportunistic and tactical motives, magnifies the harms

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to the judicial system that already inhere in any disqualification by imputation, abuse the expectations of jurors, and has the general tendency to impair rather than promote confidence in the integrity of the judicial system.").

• Kelly v. Paulsen, 44 N.Y.S.3d 263, 264-65, 265-66, 266 (N.Y. App. Div. 2016) (declining to disqualify a lawyer who had been acting as co-counsel, but who replaced co-counsel because of a conflict it faced; "Shortly before the commencement of the trial in January 2015, Paulsen allegedly learned for the first time that HHK was representing plaintiffs. HHK had also represented Paulsen in numerous personal and business matters between 1985 and 2015 and, on the first day of trial, Paulsen moved to disqualify HHK based upon the conflict of interest created by this representation. Supreme Court (Tait, J.) initially denied the motion and permitted jury selection to commence; however, after receiving additional information about HHK's representation of Paulsen, the court withdrew its prior ruling, declared a mistrial and recused itself. Thereafter, HHK withdrew from the representation with plaintiffs' consent, leaving Shultz as plaintiffs' sole counsel. Paulsen moved to disqualify Shultz, and Supreme Court (Dowd, J.), granted the motion. Plaintiffs appeal."; "Schultz does not share office space with HHK, but instead maintains his own separate office. He did not receive support services from HHK such as office space, secretarial services or a computer, nor did HHK supervise his work or instruct him on how to perform his work. Significantly, he averred that he never had access to any HHK client files other than that of plaintiffs. Shultz specifically averred that he never represented Paulsen or was aware of him or his business affairs before his involvement in this case, that he never received any confidential information pertaining to Paulsen from HHK, and that HHK did not give him access at any time to any files which he might have obtained such information."; "The HHK partner with whom Shultz acted as co-counsel confirmed that Shultz was not an employee and that he worked independently from HHK. She averred that HHK has over 80 attorneys and that, due to the firm's size, multiple office locations and compartmentalization into various departments, she had never acquired any information, 'confidential or otherwise,' about Paulsen. She further averred that she had no knowledge of Paulsen beyond the negligence action and that she met him for the first time on the first day of trial in January 2015. She confirmed that Shultz was not provided with support services, equipment or an office by HHK and that he never had access to any HHK client files, nor did he participate in discussions of client affairs.").

(c) The imputed disqualification rules normally impute an individual lawyer's disqualification to an entire "firm" (defined to also include corporate law departments).

ABA Model Rule 1.10. However, these imputed disqualification rules do not automatically extend to co-counsel.

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• Restatement (Third) of Law Governing Lawyers § 123 cmt. c(iii) (2000) ("Two or more lawyers or law firms might associate for purposes of handling a particular case. A common example is a lawyer who appears as local counsel in litigation principally handled by another firm. Each lawyer must comply with the rules concerning conflict of interest, and other lawyers in their respective firms are governed by the rules of imputation. However, a conflict imputed within a firm does not extend by imputation to lawyers in another firm working on another matter.").

• Oracle Am., Inc. v. Innovative Tech. Distribs., LLC, Case No. 11-CV-01043- LHK, 2011 U.S. Dist. LEXIS 78786, at *16-17 (N.D. Cal. July 20, 2011) (holding that an in-house lawyer's possible disqualification based on moving from one company's law department to an adversary's law department was not imputed to the new company's outside counsel; "There appear to be few cases where courts have imputed confidential knowledge to co-counsel as the basis for disqualification. Indeed, the general rule seems to be the contrary: 'disqualification of one firm does not automatically compel disqualification of the firm's co-counsel . . . . Rather, the particular facts of each case must be considered in order to determine whether disqualification is warranted.' See In Re Airport Car Rental Antitrust Litigation, 470 F. Supp. 495, 501-502 (N.D. Cal. 1979) (citing Fund of Funds, Ltd. v. Arthur Andersen & Co., 567 F.2d 225, 235 (2d Cir. 1977)).").

• Kelly v. Paulsen, 44 N.Y.S.3d 263, 264-65, 265-66, 266 (N.Y. App. Div. 2016) (declining to disqualify a lawyer who had been acting as co-counsel, but who replaced co-counsel because of a conflict it faced; "Shortly before the commencement of the trial in January 2015, Paulsen allegedly learned for the first time that HHK was representing plaintiffs. HHK had also represented Paulsen in numerous personal and business matters between 1985 and 2015 and, on the first day of trial, Paulsen moved to disqualify HHK based upon the conflict of interest created by this representation. Supreme Court (Tait, J.) initially denied the motion and permitted jury selection to commence; however, after receiving additional information about HHK's representation of Paulsen, the court withdrew its prior ruling, declared a mistrial and recused itself. Thereafter, HHK withdrew from the representation with plaintiffs' consent, leaving Shultz as plaintiffs' sole counsel. Paulsen moved to disqualify Shultz, and Supreme Court (Dowd, J.), granted the motion. Plaintiffs appeal."; "Schultz does not share office space with HHK, but instead maintains his own separate office. He did not receive support services from HHK such as office space, secretarial services or a computer, nor did HHK supervise his work or instruct him on how to perform his work. Significantly, he averred that he never had access to any HHK client files other than that of plaintiffs. Shultz specifically averred that he never represented Paulsen or was aware of him or his business affairs before his involvement in this case, that he never received any confidential information pertaining to Paulsen from

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HHK, and that HHK did not give him access at any time to any files which he might have obtained such information."; "The HHK partner with whom Shultz acted as co-counsel confirmed that Shultz was not an employee and that he worked independently from HHK. She averred that HHK has over 80 attorneys and that, due to the firm's size, multiple office locations and compartmentalization into various departments, she had never acquired any information, 'confidential or otherwise,' about Paulsen. She further averred that she had no knowledge of Paulsen beyond the negligence action and that she met him for the first time on the first day of trial in January 2015. She confirmed that Shultz was not provided with support services, equipment or an office by HHK and that he never had access to any HHK client files, nor did he participate in discussions of client affairs.").

• Venters v. Sellers, 261 P.3d 538 (Kan. 2011) (declining to disqualify a lawyer who had referred the case to another firm which was later disqualified).

• Gifford v. Target Corp., 723 F. Supp. 2d 1110, 1122 (D. Minn. 2010) (disqualifying a law firm which had represented a Target executive who had been exposed to privileged Target communications, and then became class counsel for a class of employees suing Target in a related matter; not automatically disqualifying the disqualified law firm's co-counsel, but requiring that firm to file an affidavit explaining its exposure to any materials or information that the law firm had obtained from the Target executive; "Target also seeks disqualification of the Halunen firm's co-counsel, Levin Fishbein Sedran & Berman (the 'Levin firm'). Where knowledge gained by counsel through disclosures of protected information will lead to an improper benefit, disqualification is required to protect the judicial process and the interests of the former client. . . . The record lacks evidence that the Levin firm has knowledge of the protected communications and documents Doe provided to the Halunen firm. Nevertheless, it is conceivable that the Levin firm became aware of the privileged information Doe disclosed. Therefore, the Levin firm is required to file an affidavit describing its contact, if any, with Doe, its exposure to materials Doe provided to the Halunen firm, and its communications with the Halunen firm or others concerning disclosures made by Doe.").

When the disqualification motion rests on some informational problem (as with adversity to a former client), most courts require an additional showing of actual transmission of tainted information before disqualifying co-counsel.

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Best Answer

The best answer to (a) is MAYBE; the best answer to (b) is MAYBE; the best answer to (c) is (B) NO (PROBABLY).

N 3/12

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