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FREQUENTLY
ASKED QUESTIONS
A review of the inquiries made
to the Committee's Ethics Hotline has shown that certain questions occur
more often than others. Accordingly, the Committee has prepared
a set of answers to frequently asked questions for the general edification
of the Bar. The answers provide only an introduction to the topics
discussed. Before taking any action, a lawyer should conduct more
extensive research, consulting at a minimum relevant court decisions,
the Committee's formal opinions, and the opinions of the Professional
Responsibility Committees of the New York State Bar Association, the New
York County Lawyers' Association, and the Nassau County Bar Association.
Select a topic, or scroll down to view the
entire FAQ.
SIMULTANEOUS REPRESENTATION OF
MULTIPLE CLIENTS
Q. Under
what circumstances is a lawyer permitted to represent multiple clients
in the same or substantially similar matters?
A.
A lawyer may represent multiple clients in the same or substantially
similar matters provided that the lawyer's conduct conforms to DR 5-105
of the Lawyer's Code of Professional Responsibility, as amended June 30,
1999. See 22 NYCRR § 1200.24. DR 5-105(A) and (B)
provide, respectively, that a lawyer shall decline proffered employment
or shall not continue multiple employment, "if the exercise of independent
professional judgment in behalf of a client will be or is likely to be
adversely affected by the [multiple representation], or if it would be
likely to involve the lawyer in representing differing interests, except
to the extent permitted under DR 5-105(C)." The Definitions section
of the Lawyer's Code defines "differing interests" as "includ[ing]
every interest that will adversely affect either the judgment or the loyalty
of a lawyer to a client, whether it be a conflicting, inconsistent, diverse,
or other interest." Multiple representation can cause serious
hardship to one or more clients if a lawyer is forced to withdraw after
having performed significant legal services.
DR 5-105(C) permits multiple
representation in the situations covered by DR 5-105(A) and (B) "if
a disinterested lawyer would believe that the lawyer can competently represent
the interest of each and if each consents to the representation after
full disclosure of the implications of the simultaneous representation
and the advantages and risks involved."
The Ethical Considerations offer
further guidance regarding the propriety of multiple representation.
EC 5-15 provides that a lawyer who has been asked to undertake or to continue
to represent multiple clients "must weigh carefully the possibility
that the lawyer’s judgment may be impaired or loyalty divided if
the lawyer accepts or continues the employment" and notes that the
lawyer "should resolve all doubts against the propriety of the representation."
The determination whether multiple representation is acceptable "depends
upon an analysis of each case." EC 5-17. For example, an attorney
may not represent two plaintiffs in separate actions against the same
defendant arising out of the same incident, when there may not be sufficient
assets to satisfy both claims. N.Y. State 639 (1992).
The purpose of DR 5-105 is "to
protect clients from an attorney who is incapable of zealously representing
the potentially competing interests of each client." Sports
Medicine Service of Gramercy Park, Inc. v. Perez, 172
Misc.2d 126 (N.Y. Civ. Ct. 1997).
Even when the representation
of multiple clients with differing or potentially differing interests
is acceptable, both DR 5-105(C) and EC 5-16 require that a client
give his or her informed consent to the representation "after full
disclosure of the implications of the simultaneous representation and
the advantages and risks involved." EC 5-16 provides that it
is "essential that each client be given the opportunity to evaluate
the need for representation free of any potential conflict and to obtain
other counsel if the client so desires." Finally, EC 5-16 cautions
that before representing multiple clients, the lawyer
should explain fully to each
client the implications of the common representation and otherwise provide
to each client information reasonably sufficient, giving due regard
to the sophistication of the client, to permit the client to appreciate
the significance of the potential conflict, and should accept or continue
employment only if each client consents, preferably in writing.
See also IBM v. Levin,
579 F.2d 271 (3d Cir. 1978) (attorney has an affirmative obligation
to disclose a conflict and to obtain consent; the client's constructive
knowledge is not sufficient). Of course, if a disinterested lawyer
would conclude that "any of the affected clients should not agree
to the representation under the circumstances, the lawyer involved should
not ask for such agreement or provide representation on the basis of the
client’s consent." EC 5-16.
The representation of multiple
clients with adverse interests in connection with litigated matters is
strongly discouraged, and the courts have not hesitated to disqualify
an attorney in such circumstances. See ECs 5-15 & 5-17. See
e.g., Cinema 5. Ltd. v. Cinerama, Inc., 528 F.2d
1384 (2d Cir. 1976); Strategem Development Corp. v.
Heron Int'l N.V., 756 F. Supp. 789 (S.D.N.Y. 1991).
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SUCCESSIVE ADVERSE REPRESENTATION
Q. Under
what circumstances is a lawyer permitted to represent a client in a matter
in which the client's interests are adverse to those of a former client?
A.
DR 5-108(A)(1) provides
1. Except with the permission
of a former client after full disclosure a lawyer who has represented
the former client in a matter shall not:
1. 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.
A disability arises under DR 5-108(A)(1)
when (i) an attorney-client relationship existed with the former client,
(ii) the matters involved are substantially related, and (iii) the interests
of the present and former client are materially adverse. Jamaica
Public Services Co. v. AIU Insurance Co., 92 N.Y.2d 631 (1998). The
purpose of DR 5-108(A)(1) is to protect against a lawyer revealing his
or her former client's confidences or secrets. Tekni-Plex, Inc.
v. Meyner & Landis, 89 N.Y. 2d 123 (1989).
The substantial relationship test
embodied in DR 5-108(A)(1) establishes a presumption in favor of former
clients that, when a new matter undertaken by an attorney is factually
or legally related "substantially" to the prior representation,
a significant risk arises that confidences or secrets imparted by the
former client will prove useful to the attorney in presenting the new
client. The test is not subject to mathematical precision, but rather
seeks to differentiate between "lawyers who become heavily involved
in the facts of a particular matter and those who enter briefly on the
periphery for a limited and specific purpose relating solely to legal
questions." Silver Chrysler Plymouth, Inc. v. Chrysler
Motors Corp. 518 F.2d 751, 756 (2d Cir. 1975).
In addition to the protection discussed
above, DR 5-108(A)(1) prohibits a lawyer from using a former client's
confidences or secrets, except to the extent permitted by DR 4-101(C)
or when a confidence or secret has become generally known.
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WITHDRAWAL AND THE RETENTION OF
CLIENT FILES
WHEN
A CLIENT FAILS TO PAY THE LAWYER'S FEES
Q. When
a client fails to pay its legal bills, may a lawyer withdraw from the
representation, and if so, how? Can the lawyer retain the file until
the bills are paid?
A.
General
summary. A lawyer generally may withdraw from the representation
when the client fails to pay legal bills, but must take steps to the extent
reasonably practicable to avoid foreseeable prejudice to the rights of
the client. DR 2-110 (A), (C). In litigation proceedings,
court rules commonly require consent before withdrawing. The exercise
of retaining liens has been approved as an ethical matter, but their precise
contours are questions of law, not ethical command, and are beyond the
jurisdiction of this Committee.
Deliberate disregard of
fee agreement required. DR 2-110(C)(1)(f) provides:
Except as stated in DR 2-110
(A), a lawyer may withdraw from representing a client if . . .
1. The client:
. . .
f. Deliberately disregards
an agreement or obligation to the lawyer as to expenses or fees.
The requirement that the client
"deliberately disregard" an obligation to pay fees and expenses
means that the failure must have been conscious, not inadvertent, and
not de minimis in either amount or duration. N.Y. State
598 (1989). Thus, a number of courts and ethical opinions have required
that the lawyer first have made a reasonable request for the client to
honor his or her obligations and warned the client that the lawyer will
move to withdraw unless the fees are paid. ABA/BNA Lawyers' Manual
on Professional Conduct 31:1108 (1998); see N.Y. State 598 (1989)
(attorney must provide "clear notice to the client of the attorney's
desire to withdraw"). In addition, if the client is engaged
in a legitimate dispute with the lawyer over the amount of the fees, some
courts have suggested that dispute should not be regarded as a deliberate
disregard of the client's obligations. See Matter of Benjamin,
514 N.Y.S.2d 526, 527 (App. Div. 3d Dept. 1987) ("while [client]
clearly disputed the amount owed, he did not refuse payment").
Duties upon withdrawal.
Where withdrawal is permitted, the Code stipulates that
a lawyer shall not withdraw from
employment until the lawyer has taken steps to the extent reasonably
practicable to avoid foreseeable prejudice to the rights of the client,
including giving due notice to the client, allowing time for employment
of other counsel, delivering to the client all papers and property to
which the client is entitled and complying with applicable laws and
rules.
DR 2-110(A)(2). A parallel
Ethical Consideration provides that, in addition to allowing time for
employment of other counsel, the lawyer should suggest employment of successor
counsel, cooperate with counsel subsequently employed, and "otherwise
endeavor[] to minimize the possibility of harm." EC 2-32.
In addition, the lawyer must "refund promptly any part of a fee paid
in advance that has not been earned." DR 2-110(A)(3).
Further, in litigation matters,
permission of court is required as a matter of rules of court, e.g.,
N.Y. CPLR 321(b), which are incorporated into the Code, DR 2-110(A)(1)
("If permission for withdrawal from employment is required by the
rules of a tribunal, a lawyer shall not withdraw from employment in a
proceeding before that tribunal without its permission.").
Retaining liens.
Retaining liens provide certain rights to retain, until the lawyer's fees
and expenses are paid, a client's papers, money, and other property that
have come into the lawyer's possession in the course of the lawyer's professional
employment. Ethical opinions have approved the exercise of a retaining
lien to the extent such a lien is permitted by law. N.Y. City 82-74
(file); N.Y. State 567 (1984) (money); Nassau County 90-5 (wills while
client is alive); see DR 9-102(B)(4) (requiring return of property
"which the client is entitled to receive"); see also
DR 5-103(A)(1) (charging liens permitted). The precise scope of
a lawyer's rights under a retaining lien are matters of law beyond the
jurisdiction of this Committee. See N.Y. City 82-74.
See generally ABA/BNA Lawyers' Manual on Professional Conduct
41:2102-2111 (1992); Steves v. Serlin, 509 N.Y.S.2d 666 (3d Dept.
1986).
Counsel retained by insurance
company. A number of courts have held that, where counsel
is retained by the insurance company for the client, and it is the insurance
company that does not pay counsel, counsel's rights to withdraw and to
exercise a retaining lien may be more limited than when it is the client
who has not paid. Dennis v. Young, 483 N.Y.S.2d 795 ( 3d
Dept. 1984) (counsel could not withdraw at least until dispute over coverage
decided); Turzio v. Ravenhall, 227 N.Y.S.2d 103 (NY City Ct.
Kings Cty. 1962) (counsel could not exercise retaining lien). But
see Cullen v. Olins Leasing, Inc., 457 N.Y.S.2d 9 (1st Dept. 1982)
(insurance company insolvent, lawyer permitted to withdraw).
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OF COUNSEL RELATIONSHIPS
Q. Under
what circumstances may a lawyer or law firm enter into an "of counsel"
relationship with another lawyer or law firm?
A.
Generally, under the Code of Professional Responsibility, a lawyer or
law firm may hold himself, herself or itself out as “of counsel”
to another lawyer or law firm if there is “a continuing relationship
with a lawyer or law firm other than as a partner or associate.”
DR 2-102(A)(4). A "continuing relationship" has been regularly
defined as a "close, regular, personal relationship."
See ABA 90-357; ABA 330 (1972). See also N.Y.
City 81-3 (1982) (permitting the use of an of counsel designation only
where there is a close, continuing, regular and personal relationship
or there is a "present day-to-day working familiarity with the affairs
of the law firm in question"). An of counsel relationship must
be more than "a relationship involving only occasional collaborative
efforts among otherwise unrelated lawyers or firms." Id.
The "of counsel" relationship
may not be used to designate a relationship that arises "by the mere
referral of business between firms or an occasional consulting relationship,"
N.Y. City 891 (1977); see also ABA 90-357; ABA 330; N.Y. State
262 (1972); ABA Inf. 1173 (1971); N.Y. County 592 (1971).
Factors looked at to determine whether a relationship is indeed "continuing,
regular and personal" include the sharing of office space and the
availability for regular consultation. See ABA 90-357;
see also N.Y. County 630 (1974).
Q. May
a law firm be of counsel to another law firm or lawyer?
A.
Yes. See ABA 90-357.
Q. May
a lawyer be of counsel to more than one law firm at the same time?
A.
Yes. See ABA 330 (1972); N.Y. State 231 (1972). See
also N.Y. City 81-54.
Q. May
a partner of one law firm simultaneously be of counsel to another law
firm?
A.
Yes.
See N.Y. City 81-54; N.Y. City 1995-9.
Q.
How are conflicts imputed among of counsel lawyers and law firms?
A.
In any of counsel relationship, conflicts are imputed to and through the
of counsel lawyer or law firm to the other lawyer or law firm. In
the instance of an of counsel relationship among three parties, conflicts
are imputed through from each party to the other. For example, if Lawyer
A was of counsel to Firm B and Firm C and a conflict prevented Firm B
from accepting the representation of a particular client, Lawyer A and
Firm C would also be prohibited from accepting the representation.
In short,
there is attribution to the lawyer
who is of counsel of all of the disqualifications of each firm, and,
correspondingly, attribution from the of counsel lawyer to each firm,
of each of those disqualifications. In consequence, the effect
of two or more firms sharing an of counsel lawyer is to make them all
effectively a single firm, for purposes of attribution of disqualifications.
ABA 90-357. See also
e.g., Nemet v. Nemet, 112 A.D.2d 359 (2nd Dep’t 1985), appeal
dsmd., 66 N.Y.2d 602 (1986).
Q. How
are of counsel lawyers treated for purposes of the fee splitting provisions?
A.
Under DR 2-107(A), fee splitting between lawyers who are neither partners
nor associates is subject to certain limitations. The rule
does not address fee splitting in the context of an of counsel relationship.1
Nonetheless, the Committee has concluded that where an of counsel designated
lawyer is to receive a percentage of the fees paid by a client directly
to the affiliated lawyer or law firm, the of counsel designated lawyer
should be deemed an associate for purposes of DR 2-107(A) and the limitations
do not apply.
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1DR
2-107 (A) provides:
A lawyer shall not divide a fee for legal
services with another lawyer who is not a partner in or associate of the
lawyer’s law firm, unless:
- The client consents to employment of
the other lawyer after a full disclosure that a division of fees will
be made.
- The division is in proportion to the services
performed by each lawyer or, by a writing given the client, each lawyer
assumes joint responsibility for the representation.
- The total fee of the lawyers does not
exceed reasonable compensation for all legal services they rendered
the client.
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