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THE ASSOCIATION OF THE BAR OF THE CITY OF NEW
YORK
COMMITTEE ON PROFESSIONAL AND JUDICIAL ETHICS
FORMAL OPINION 2006-1
February 17, 2006
Topic: Multiple Representations; Informed Consent; Waiver of Conflicts
DIGEST: A law firm may ethically request a client to
waive future conflicts if (a) the law firm makes appropriate disclosure
of, and the client is in a position to understand, the relevant implications,
advantages, and risks, so that the client may make an informed decision
whether to consent, and (b) a disinterested lawyer would believe
that the law firm can competently represent the interests of all affected
clients. See DR 5-105(C). “Blanket” or “open-ended” advance
waivers, and advance waivers that permit the law firm to act adversely
to the client on matters substantially related to the law firm’s
representation of the client should be limited to sophisticated clients,
and the latter advance waiver also conditioned on meeting the tests articulated
in ABCNY Formal Opinion 2001-2, including that (a) the waiver be limited
to transactional matters that are not starkly disputed and (b) client
confidences and secrets be safeguarded.
CODE: DR 4-101; EC 4-1; EC 4-2; EC 4-4; EC 4-5; EC
4-6;
DR 5-105; DR 5-108; EC 5-1; EC 5-14; EC 5-15; EC 5-16
QUESTION
Under what circumstances may a law firm ethically request that a client
prospectively waive objection to the law firm’s subsequent representation
of another client adversely to the first client?
OPINION
When a law firm agrees to represent a client in a particular matter,
it may ethically request that the client waive future conflicts of interest,
including that the client consent to allow the law firm to bring adverse
litigation on behalf of another current client, if (a) the law firm appropriately
discloses the implications, advantages, and risks involved and if the
client can make an informed decision whether to consent; and (b) a disinterested
lawyer would believe that the lawyer can competently represent the interests
of all affected clients. See DR 5-105(C).
At least for a sophisticated client,1 blanket
advance waivers and advance waivers that include substantially related
matters (with adequate protection for client confidences and secrets)
also are ethically permitted.
These conclusions are consistent with the opinions of other bar associations
and with prior opinions of this Committee. For example, both the New
York County Lawyers’ Association Committee on Professional Ethics
and the American Bar Association have recognized the permissibility of
advance waivers. See NYCLA Ethics Opinion No. 724 (approving
advance waiver if future representation gives rise to consentable conflict
and if attorney makes adequate disclosure to client or prospective client);
ABA Formal Opinion 05‑436 (noting that comment to Model Rules supports “likely
validity of an ‘open-ended’ informed consent if the client
is an experienced user of legal services”); see also NYSBA
Committee on Standards of Attorney Conduct, Proposed New York Rules of
Professional Conduct Rule 1.7, Comment 22A (Sept. 30, 2005) (“A
client may agree in advance to waive potential conflicts that have not
yet ripened into actual conflicts. The nature of the disclosure necessary
to ensure that the client’s advance consent is ‘informed’ will
depend on various factors.”); Restatement 3d of Law Governing Lawyers § 122,
Comment d (“[T]he 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.”); ABCNY Formal Opinion
2004-02 (approving the use of advance waiver for potential conflicts
of interest in multiple representation of a corporation and its constituents
in governmental investigation).
Furthermore, this Committee has approved, under certain circumstances,
the representation of multiple clients with differing interests in the
same transaction, see ABCNY Formal Opinion 2001-2, and a similar
analysis applies in assessing advance waivers of conflicts of interest
that involve substantially related matters.
The Need for Advance Conflict Waivers
In Cinema 5, Ltd. v. Cinerama, Inc., 528 F.2d 1384 (2d Cir.
1976), the Court of Appeals for the Second Circuit held that the “substantial
relationship” test does not apply to conflicts between current
clients. Rather, the Court of Appeals held that, “[w]here the relationship
is a continuing one, adverse representation is prime facie improper,
and the attorney must be prepared to show, at the very least, that there
will be no actual or apparent conflict in loyalties or diminution in
the vigor of his representation.” Id. at 1387 (citation
omitted). Although the Court explicitly held open the possibility that
this presumption of diminished zealous representation may be rebutted,
as one leading commentator has observed, after Cinema 5 Ltd., “it
has become axiomatic that a law firm’s representation of a client
in a matter adverse to another current client of the firm is almost always
improper, even though the two matters are entirely unrelated.” Jonathan
J. Lerner, Honoring Choice by Consenting Adults: Prospective Conflict
Waivers as a Mature Solution to Ethical Gamesmanship – A Response
to Mr. Fox, 29 Hofstra Law Review 971, 973 (2001) (“Lerner”).
In the 30 years since Cinema 5, Ltd. was decided, the market
for legal services has changed drastically, with many clients, especially
large corporations, increasingly abandoning their previous practice of
retaining a single law firm for all their legal needs and instead now
engaging different lawyers for different matters. See Leah Epstein,
Comment, A Balanced Approach to Mandamus Review of Attorney
Disqualification Orders, 72 U. Chi. L. Rev. 667, 673-74 (2005) (citations
omitted). These clients, many of which have multiple businesses, myriad
affiliates, and substantial in‑house legal staffs, have become
more sophisticated and more demanding in retaining counsel. As a result,
today these same clients often hire different law firms in different
jurisdictions and in different areas of law. See, e.g., Neil
Rosenbaum, Cast a Wide—and Optimistic—Net, Nat’l
L. J., Feb. 17, 2003, at C4 (noting survey of 131 Fortune 250 companies
retaining multiple law firms of varying sizes for intellectual-property
work). In today’s legal world, the paradigm of a lawyer serving
all the legal needs of the client and being a friend “for all purposes” no
longer applies to the relationships between many lawyers and clients.
Unfortunately, the resulting increase in the number of potential lawyer-client
conflicts has been accompanied by an increase in tactical disqualification
motions. See Armstrong v. McAlpin, 625 F.2d 433, 437 (2d Cir.
1980) (en banc) (recognizing “proliferation of disqualification
motions and the use of such motions for purely tactical reasons”), vacated
on other grounds, 449 U.S. 1106 (1981); Cerqueira v. Clivilles,
623 N.Y.S.2d 580, 580 (App. Div. 1995) (“[W]e are not unmindful
that disqualification motions are frequently used as a litigation tactic.”); see
also Sports Med. Serv. of Gramercy Park v. Perez, 657 N.Y.S.2d 314,
315-16 (Civ. Ct. 1997) (“Disqualification motions have become a
cottage industry. All too frequently attorneys bring such motions as
a litigation tactic. Even where the situation presented seems to implicate
a disciplinary rule if read literally, the court must be wary to prevent
its misuse, particularly when it is unnecessarily detrimental to the
adverse party’s rights.”).
Given these realities, an overly broad interpretation of the duty of
loyalty can strip even a long-standing client of the right to counsel
of its choice, thereby perversely depriving the client of the very benefit
which that ethical duty is designed to secure – the law firm’s
loyalty: “[T]his extremely rigid prohibition on all adverse concurrent
representation can preclude a client that has relied on a law firm for
many years from continuing to utilize its services if the law firm happens
to represent the client’s adversary in another matter, even though
the other engagement is entirely unrelated to the controversy and there
is no conceivable risk that any diminution of loyalty to, or zealousness
in representing, the other client would occur.” Lerner at
974.
A client’s choice of counsel is a fundamental right that the New
York Court of Appeals recognized in Levine v. Levine, 56 N.Y.2d
42 (1982), in which the Court approved a single lawyer representing potentially
adverse parties to a marital separation agreement. In Levine,
the Court of Appeals held that the potentially adverse parties had the
absolute right to retain the same lawyer as long as “there has
been full disclosure between the parties, not only of all relevant facts
but also of their contextual significance, and there has been an absence
of inequitable conduct or other infirmity.” Id. at 48; see
also Cerqueira, 623 N.Y.S.2d at 580 (“A civil litigant has
a fundamental right to the legal counsel of choice . . . .”); Drury
v. Tucker, 621 N.Y.S.2d 822, 823 (App. Div. 1994) (“[A] disqualification
motion must be ‘carefully scrutinized’ because it ‘denies
a party’s right to representation by the attorney of [his] choice.’”)
(citations omitted).
An overly broad interpretation of the duty of loyalty also visits significant
injury on law firms of all sizes. Thus, for example, a small firm whose
core practice is representing insureds in insurance litigation may be
constrained to reject an engagement for an insurer because that engagement
could preclude the firm from representing any insured adversely to the
insurer.2 Likewise, a “mega” firm,
which maintains offices in several cities, may be precluded from defending
a long-standing client in “bet-the-company” litigation because
another of the firm’s offices, thousand of miles away and staffed
by different lawyers, is representing the plaintiff in an unrelated and
minor transaction.
In response, law firms and their clients have increasingly turned to
advance waivers, by which they and their clients seek to create their
own ethical “default,” so that both the law firm and the
client establish clear rules of the road at the inception of the relationship – a
time when both sides can determine whether to proceed with the representation.
This, in turn, raises the question when advance waivers are ethically
permissible.
DR 5-105
The validity of an advance waiver must be measured against DR 5-105,
which expressly allows clients to consent to conflicts under certain
circumstances. DR 5-105 prohibits a lawyer from undertaking or continuing
multiple representations “if the exercise of independent professional
judgment in behalf of a client will be or is likely to be adversely affected” or “if
it would be likely to involve the lawyer in representing differing interests.” DR 5-105(A)-(B).
The Code broadly defines “differing interests” to “include
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.” 22 N.Y.C.R.R. § 1200.1(a).
Significantly, the prohibitions in DR 5-105(A)-(B) are qualified by
DR 5-105(C), which provides:
[A] lawyer may represent multiple clients 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
or risks involved.
DR 5-105(C). For a law firm to enforce an advance waiver, that waiver
must thus pass two tests: (a) the “disinterested lawyer” test
and (b) the “informed consent” test, i.e.,
consent after full disclosure of the relevant implications, advantages,
and risks.
A. The Disinterested Lawyer Test
A disinterested lawyer is a lawyer “whose only aim would be to
give the client the best advice possible about whether the client should
consent to a conflict” or potential conflict. See Simon’s
New York Code of Prof’l Responsibility Ann. 554-55 (2003), quoted
in ABCNY Formal Op. 2004-02. If a disinterested lawyer “would
conclude that any of the affected clients should not agree to the [multiple]
representation under the circumstances, the lawyer involved should not
ask” for the advance waiver. EC 5-16. For example, a disinterested
lawyer would disapprove seeking a waiver to simultaneously represent
two significantly adverse parties in the same matter:
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.
Restatement 3d of Law Governing Lawyers § 122, Illustration 10.
The disinterested lawyer test should be applied both when the advance
waiver is given and again when the subsequent adverse matter arises.
In the first instance, the lawyer examines the type of representation
and prospective client that is anticipated and the potential adversity
of interests. In the second instance, the lawyer examines the actual
client and matter and the actual adversity that has developed. If the
actual conflict is materially different from the conflict envisioned
by the waiver, the waiver will be ineffective. If the actual conflict
is not materially different, the waiver will also be ineffective if the
actual conflict is nonconsentable. For an analysis of the considerations
involved in the “disinterested lawyer” test, see ABCNY Formal
Opinion 2004-02.
B. The Informed Consent Test
DR 5-105(C) also requires each client to “consent[ ] to the representation
after full disclosure of the implications of the simultaneous representation
and the advantages and risks involved.” But “it frequently
will be more difficult for an attorney to make ‘full disclosure’ to
the same extent as in connection with a concurrent waiver.” ABCNY
Formal Opinion 2004‑02. Although disclosure of the nature
of the matter that would likely cause the conflict and the name of the
potential adverse party, if known, may readily meet the disclosure requirement,
see St. Barnabas Hosp. v. New York City Health
and Hosps. Corp., 775 N.Y.S.2d 9 (App. Div. 2004) (enforcing advance
conflict waiver when the waiver named the potential future adverse party),
this information is typically not known at the time the advance waiver
is sought.
The “adequacy of disclosure and consent” will depend upon
the circumstances of each case. See Wolfram, Modern Legal Ethics § 7.2.4
at 343 (1986); NYCLA Ethics Opinion No. 724. We agree with
NYCLA Ethics Opinion No. 724 that, in general, “the client or prospective
client should be advised of the types of possible future adverse representations
that the lawyer envisions, as well as the types of clients or matters
that may present such conflicts.”
Some opinions have emphasized the sophistication of the client in judging
the degree of required disclosure, see NYCLA Ethics Opinion
No. 724; ABA Model Rule 1.7, Comment 22, and this too
is an important consideration. Sophisticated clients need less disclosure
of the “implications,” “advantages,” and “risks” of
advance waivers before being able to provide informed consent. Similarly,
Comment 22 to ABA Model Rule 1.7, with which we also agree, observes
that the effectiveness of advance waivers is determined “by the
extent to which the client reasonably understands the material risk that
the waiver entails,” placing the emphasis, for the sophisticated
client, on the client’s understanding of risks rather than detailed
disclosure by the lawyer. For the sophisticated clients described above,
blanket or open-ended advance waivers that are accompanied by relatively
limited disclosure about the prospective conflicting matters should nevertheless
be enforceable.3
Advance Waivers That Include Substantially Related Matters
The discussion of advance conflict waivers in bar association opinions
and in law review articles has largely focused on when the law firm’s
present engagement for Client A and future engagement for Client B adverse
to Client A are not substantially related. To be sure, when the waiver
applies to two engagements that are substantially related, another consideration
must be added to the analysis – the need to safeguard each client’s
confidences and secrets and to ensure that those confidences and secrets
are not used to the respective client’s disadvantage. See DR
4-101. Still, we believe that under the circumstances described below,
an advance waiver ethically may apply to substantially related matters.
In ABCNY Formal Opinion 2001-2, we discussed at length a law firm representing
multiple clients with actually or potentially differing interests in
unrelated matters or in the same matter. In a single litigation, a lawyer
cannot ethically represent both sides. Similarly, in 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 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.
In Formal Opinion 2001-2, we articulated a number of factors that a
lawyer should consider in determining whether the lawyer can represent
multiple clients with differing interests in unrelated matters or in
the same matter: (a) the nature of the conflict and the possibility
of an adverse effect on the exercise of the lawyer’s independent
professional judgment; (b) the likelihood that client confidences or
secrets in one matter will be relevant to the other representation; (c)
the ability of the lawyer or law firm to ensure that confidential information
of the affected clients will be preserved, including through screening
and other information-control devices; (d) the sophistication of
the client and the client’s ability to understand the reasonably
foreseeable risks of the conflict; and (e) if the firm is still
representing the waiving client when the conflict arises, whether the
lawyer’s relationship with the clients is such that the lawyer
is likely to favor one client over another. These same factors also help
determine whether an advance waiver passes muster when that waiver includes
substantially related matters in a transactional setting.
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.
Drafting Advance Waivers
An advance waiver need not be in writing if informed consent can be
found under the circumstances. Nevertheless, under most circumstances
a written confirmation of the advance waiver is salutary because it may
avoid disputes over the nature and extent of the waiver.
Given this, we believe it useful to provide guidance regarding the drafting
of an advance waiver. To that end, we have attached two examples, A and
B, of blanket waivers and one example, C, of an advance waiver covering
substantially related matters. These are merely examples of the many
forms that a workable advance waiver might take. But it bears emphasis,
as this opinion concludes, that an advance waiver must be tailored to
the specific situation at hand.
In this vein, because a waiver is more likely to be enforced the more
specifically it refers to a conflict that eventually arises, it is advisable
to supplement the general language of these examples with non-exclusive
reference to particular clients or circumstances which may then present
foreseeable conflicts. This is particularly true of an advance waiver
with respect to substantially related matters.
Conflicts Waiver: EXAMPLE A
(Blanket Advance Waiver Not Including 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 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.
Conflicts Waiver: EXAMPLE B
(Same Type of Advance Waiver as A)
This firm is a general service law firm that [insert client name here]
recognizes has represented, now represents, and will continue to represent
numerous clients (including without limitation [the client’s] or
its affiliates’ debtors, creditors, and direct competitors), nationally
and internationally, over a wide range of industries and businesses and
in a wide variety of matters. Given this, without a binding conflicts
waiver, conflicts of interest might arise that could deprive [the client]
or other clients of the right to select this firm as their counsel.
Thus, as an integral part of the engagement, [the client] agrees that
this firm may, now or in the future, represent other entities or persons,
including in litigation, adversely to [the client] or any affiliate on
matters that are not substantially related to (a) the legal services
that [this firm] has rendered, is rendering, or in the future will render
to [the client] under the engagement and (b) other legal services
that this firm has rendered, is rendering, or in the future will render
to [the client] or any affiliate (an “Allowed Adverse Representation”).
[The client] also agrees that it will not, for itself or any other entity
or person, assert that either (a) this firm’s representation
of [the client] or any affiliate in any past, present, or future matter
or (b) this firm’s actual, or possible, possession of confidential
information belonging to [the client] or any affiliate is a basis to
disqualify this firm from representing another entity or person in any
Allowed Adverse Representation. [The client] further agrees that any
Allowed Adverse Representation does not breach any duty that this firm
owes to [the client] or any affiliate.
Conflicts Waiver: EXAMPLE C
(Advance Waiver Including Substantially Related Matters)
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 5-1054 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.
1.
As used in this opinion, a sophisticated client is one that readily appreciates
the implications of conflicts and waivers. This would include, but not be limited
to, clients that regularly engage outside counsel for legal services, or that
have access to independent or inside counsel for advice on conflicts.
2.
See , e.g., Kennecott Copper Corp. v. Curtiss-Wright Corp., No. 78 Civ.
1295, slip op. at 6-7 (S.D.N.Y. Apr. 11, 1978) (“Quite clearly, Skadden,
Arps, a burgeoning law firm, was unwilling to close its doors to future clients
by risking disqualification in its field of specialty merely because Curtiss-Wright
[a “one shot client”] might set its sights on some company which
happened then to be a client of Skadden, Arps.”) (upholding advance waiver).
3.
The sophistication of the client also bears in other ways on the scope of the
permissible waiver. For example, there are a few cases suggesting that a client
cannot consent to have his or her own lawyer bring claims against the client
charging fraud. See, e.g., Rosen v. Rosen, N.Y.L.J. Jan. 31,
2003 (Sup. Ct. Suffolk Cty. 2003) (“this Court simply cannot conceive of
a knowing waiver by a client of such significant interests,” when one client
accused the other of submitting a false court filing). These cases are best understood
as reflecting skepticism about whether the client understood and consented to
the waiver. They have little relevance to waivers by sophisticated clients, particularly
when the client is a large institution and the claims of misconduct involve personnel
not involved in the representation of that client.
4.
22 NYCRR § 1200.24(c).
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