Formal Opinion 2005-05: Unforeseeable Concurrent Client Conflicts
1. QUESTION
When unforeseeable conflicts develop between clients in the course of ongoing representation of both, without fault of the lawyer, and the clients refuse to consent to simultaneous representation, which, if any, client may the lawyer continue to represent? If the lawyer may continue to represent one but not both clients, how does the lawyer decide which client to continue representing?
2. INTRODUCTION
Conflicts that arise through no fault of the lawyer may develop in the course of representing two or more clients in unrelated matters as a result of corporate acquisitions or other unforeseeable circumstances. In those situations, lawyers typically seek conflict waivers from the affected clients, but in some instances a client may withhold consent to the multiple representation. This opinion examines the lawyer’s ethical duties when confronted with such so-called “thrust upon” conflicts, which are illustrated by the following two scenarios.
Scenario 1 : A law firm represents Client A in a breach of contract suit against Company B. During the pendency of that suit, Client C, a longtime ongoing client of the law firm, acquires Company B in a stock sale, and Company B becomes a wholly owned subsidiary of Client C. The law firm (which does not represent Client C in the acquisition of B) informs Clients A and C that it wishes to continue to represent each of them in their respective matters. Client A consents to a conflict of interest waiver, but Client C does not. May the law firm continue to represent at least one client, and if so, may the law firm choose which client to represent?
Scenario 2 : 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?
As these scenarios suggest, “thrust upon” conflicts often, but do not always, arise as a result of changes in corporate ownership. Also, they may arise in both litigation and transactional practice. While in litigation a disqualification motion may as a practical matter resolve the question, in any case a lawyer’s ethical duties exist independent of court disqualification jurisprudence and a lawyer will have to guide him or herself based on analysis of ethical obligations under the Code. A lawyer faced with an unforeseen conflict that arises through no fault of his or her own, the lawyer should be guided by the factors set forth in this opinion when deciding from which representation to withdraw.
3. DISCUSSION
Lawyers have a duty to consider potential conflicts at the outset of an engagement and to decline proffered employment when such conflicts are likely. DR 5-105(A). Even careful conflicting-checking, however, will not eliminate the risk of unforeseeable conflicts arising after the lawyer or firm has commenced multiple representations. Under the New York Code of Professional Responsibility (the “Code”), a lawyer may not continue the concurrent representation of multiple clients “if the exercise of independent professional judgment on behalf of a client will be or is likely to be adversely affected by the lawyer’s representation of another client, or if it would be likely to involve the lawyer in representing differing interests,” DR 5-105(B), unless the conflict is capable of being, and is, consented to under DR 5-105(C). This opinion addresses the requirements of DR 5-105(B) in the case of “thrust upon” concurrent client conflicts. For purposes of this opinion “thrust upon” conflicts are defined as conflicts between two clients that (1) did not exist at the time either representation commenced, but arose only during the ongoing representation of both clients, where (2) the conflict was not reasonably foreseeable at the outset of the representation, (3) the conflict arose through no fault of the lawyer, and (4) the conflict is of a type that is capable of being waived under DR 5-105(C),1 but one of the clients will not consent to the dual representation. Although the “thrust upon” conflict may be unforeseeable and arise through no fault of the lawyer or law firm affected, when it gives rise to a concurrent conflict under DR 5-105, the lawyer must nevertheless take action to avoid violation of DR 5-105(B). The customary response to such conflicts is for the lawyer to withdraw as necessary to avoid the conflict. See DR 2-110(B)(2). The Code does not, however, expressly address the case of “thrust upon” conflicts, nor does it specify under DR 2-110 from which representation(s) the attorney should withdraw in order to cure the conflict.
Nor has this dilemma been addressed directly by New York ethics opinions construing the Code. A growing body of case law, however, has dealt with “thrust upon” conflicts in litigation, applying a flexible approach that is consistent with the Code and should be used as a guide to resolving such conflicts, within the limits set forth in this opinion.
A. A lawyer faced with an apparent “thrust upon” conflict should first determine whether a concurrent conflict under DR 5-105 exists
When client relationships change during the course of a representation, the lawyer should first determine whether the changed circumstances create an actual conflict. As Scenarios 1 and 2 above, as well as case law2 suggest, corporate transactions are often sources of apparent “thrust upon” conflicts. In such cases, an apparent conflict may arise during the representation of two formerly unrelated clients when one becomes a member of the same corporate family (e.g., an affiliate, subsidiary, parent, or sister corporation) as another client’s adversary. Representation of one member of a corporate family, however, does not automatically constitute representation of another member of the same corporate family. For the purposes of the ethics rules, a current client’s adversary that, due to a merger or acquisition, has become the parent or subsidiary of another client, may not be considered a “client” at all. And if the apparent conflict does not actually involve two current clients, there is no conflict of interest under DR 5-105, and the attorney does not need to obtain consent from both clients in order to continue representing both.
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 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. SeeEastman 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 financially 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”); See 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).
In “thrust upon” conflict situations, application of the factors articulated in the cited ethics opinions will often lead to the conclusion that no conflict exists. For example, in Scenario 1 above, Company B has become a subsidiary of a long-time firm Client C. If the firm has no pre-existing relationship with Company B, is not representing Company B at the time the purported conflict arises, was not involved in the transaction whereby Company B became a subsidiary of Client C, and the firm has not acquired confidences of Company B that are relevant to the litigation, then, absent other factors, it may be that the firm will be able to conclude that it does not have an attorney-client relationship with Company B. As a result, there is no concurrent conflict and it would be permitted to continue to represent Client A in litigation without the consent of Company B or Client C.
The remainder of this opinion assumes that the unforeseen change of circumstances does result in a concurrent conflict within the purview of DR 5-105.
B. General rule requiring withdrawal where a consentable conflict of interest exists between concurrent clients, and one or both clients will not consent to the conflict.
Under the Code, a lawyer may not take on or continue the concurrent representation of multiple clients if the representation would “involve the lawyer in representing differing interests” or if “the exercise of independent professional judgment in behalf of a client will be or is likely to be adversely affected,” unless the lawyer obtains the consent of each client affected by the conflict. DR 5-105. It is well settled that this means a lawyer may not oppose a current client in any matter, even if the matter is totally unrelated to the firm’s representation of the client, without consent from both clients. See e.g. Cinema 5, Ltd. v. Cinerama, Inc., 528 F.2d 1384, 1387 (2d Cir. 1976) (“[w]here the relationship [with a client] is a continuing one, adverse representation is prima 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 representation”) (internal citation omitted); IBM v. Levin, 579 F.2d 271, 280 (3rd Cir. 1978) (it is “likely that some ‘adverse effect’ on an attorney’s exercise of his independent judgment on behalf of a client may result from the attorney’s adversary posture toward that client in another legal matter). See also N.Y. City Eth. Op. 2003-03. When faced with a thrust upon conflict under DR 5-105, therefore, a lawyer would be unable to continue representing both clients without violating the disciplinary rule, if the lawyer is unable to obtain consent. Pursuant to DR 2-110(B)(2), a lawyer must withdraw from representing a client where the representation would violate a disciplinary rule. Therefore, ordinarily, when two clients will not consent to a conflict of interest, and the conflict requires consent, the law firm must withdraw from representation of at least one of the clients.
The New York disciplinary rules do not, on their face, indicate whether an attorney must withdraw from both representations in conflict situations, or whether the attorney may withdraw from representing only one client, and if so, which one. The disciplinary rule that governs withdrawal, DR 2-110(B)(2), merely states that a lawyer shall withdraw from employment if (“[t]he lawyer knows or it is obvious that continued employment will result in violation of a Disciplinary Rule.” It sheds no light on situations where the withdrawal to avoid violation of a disciplinary rule involves more than one client.
Previous ethics opinions that have addressed withdrawal have similarly shed little light on how an attorney should withdraw from representation when a conflict has arisen that involves two current clients in the contexts that we address. A few ethics opinions construing the New York Code have mandated withdrawal from representation of more than one client, but all are distinguishable. These situations generally involved joint representation of clients with divergent interests on the same side of a matter, or situations where attorney knowledge of confidential information affected the attorney’s ability to continue representing both clients.See, e.g., N.Y. City Eth. Op. 1990-1 (if a non-waivable conflict develops during the course of joint representation of two clients, the attorney may be forced to withdraw from both representations); N.Y.S. Eth. Op. 761 (2003) (if a lawyer receives relevant confidential information from one co-client that the lawyer is unable to share with the other co-client in joint representation, the lawyer must withdraw from representing both clients); N.Y. County Eth. Op. 707 (1995) (lawyer who represents two clients on the same side of a matter should withdraw from both representations if the lawyer learned confidential information of the dropped client that is material to the proposed remaining client’s representation); N.Y.S. Eth. Op. 592 (1988) (lawyer must withdraw from representing two clients in separate criminal cases, where the lawyer obtained confidential information that materially affected both representations)
The New York disciplinary rules governing former client conflicts also do not directly state whether a lawyer may, in order to avoid a material conflict between two current clients, withdraw from representing one client (thereby creating a “former client”) and continue to represent the other. Under DR 5-108(A), a lawyer may not represent a client adverse to a former client without consent in the same or substantially related matter, where the current client’s interests are materially adverse to the interests of the former client. If the matters are not substantially related, however, the lawyer may continue to represent a client even if that client is directly adverse to a former client, as long as the representation does not violate the lawyer’s duty of confidentiality to the former client.
C. Determining which matter to withdraw from
Since the ethics rules do not instruct lawyers how to determine from which client to withdraw when faced with a current client conflict that violates DR 5-105, lawyers confronting this situation must be guided by the duties of confidentiality and loyalty to the client. Under the Code, the duty of confidentiality extends to both current and former clients. DR 4-101(B); DR 5-108(A)(2). If the conflict of interest between two current clients arises because the lawyer possesses confidential information, and consent cannot be obtained, the lawyer normally must withdraw from the affected representation. See generally N.Y. City Eth. Op. 2005-02 (discussing duty of confidentiality). In circumstances where material confidential information is involved, or there is a substantial relationship between the two matters, a lawyer probably cannot solve the conflict merely by withdrawing from representing one client and continuing to represent the other, because the continuing representation would most likely still violate the rules regarding former client conflicts.
The duty of loyalty is also central to the ethical rules in Canon 5 prohibiting a lawyer from representing multiple clients with differing interests. “Maintaining the independence of professional judgment required of a lawyer precludes acceptance or continuation of employment that will adversely affect the lawyer’s judgment on behalf of or dilute the lawyer’s loyalty to the client.” EC 5-14. And as explained by EC 5-1, “[t]he professional judgment of a lawyer should be exercised, within the bounds of the law, solely for the benefit of the client and free of compromising influences and loyalties. Neither the lawyer’s personal interest, the interests of other clients, nor the desires of third persons should be permitted to dilute the lawyer’s loyalty to the client.” See also ABA Formal Op. No. 92-367 (1992) (“[u]nderlying the ethical prohibition [of Model Rule 1.7(a)] is the precept that the lawyer’s duty of loyalty demands that a client not be concerned with whether the lawyer may subconsciously be influenced by the differing interests of another”); Cinema 5 Ltd. v. Cinerama, Inc., 528 F.2d 1384, 1386 (2d Cir. 1976) (EC 5-1 and EC 5-14 “provide that the professional judgment of a lawyer must be exercised solely for the benefit of his client, free of compromising influences and loyalties, and this precludes his acceptance of employment that will adversely affect his judgment or dilute his loyalty”). Concurrent representation in particular “presents the risk of divided loyalty to each client, portending constrained vigor and impeding independent judgment on the lawyer’s part.” ABA Annotated Model Rules of Professional Conduct
1.7 (5th ed. 2003) at 116.
While the Code may not expressly 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.
Many courts have also found that the duty of loyalty concerns underpinning the “hot potato” rule are not present in the “thrust upon” situation where the lawyer has not instigated the conflict or deliberately sought to abandon a client. In addition, in the current business climate, corporate mergers and acquisitions occur with sufficient regularity that conflicts of interests between two clients will often arise unexpectedly and through no fault of the lawyer, creating conflict situations that are not governed by the “hot potato” rule. Consequently, many courts have applied a flexible approach to “thrust upon” situations that focuses on balancing the interests of all affected parties rather than mechanically applying the “hot potato” rule to prevent a lawyer from withdrawing from one client in order to continue representing the other. See, e.g., Installation Software Technologies, v. Wise Solutions, 2004 WL 524829 at *4 (N.D. Ill. 2004) (applying a flexible approach to the resolution of a conflict arising out of a corporate acquisition, balancing several factors including (i) prejudice, (ii) cost, (iii) the complexity of the case, and (iv) the origin of the conflict); Eastman Kodak Co. v. Sony Corp., 2004 WL 2984297 at *7 (W.D.N.Y. 2004) (holding that “the ‘flexible approach’ provides a far more practical framework to disqualification issues generated by mergers and acquisitions than the rigid ‘hot potato’ rule,” but balancing the interests in favor of disqualification); Hartford Accident and Indemnity Co., 721 F. Supp. at 541 (where a conflict arose because the plaintiff’s law firm’s former partner represented the defendant, the court held that where there is no threat of actual prejudice, only a “wooden application” of the disciplinary canons would support disqualification); AmSouth Bank , 589 So. 2d at 722 (where the law firm did not play a role originally in creating the conflict, the court followed a “common sense” approach and found that the law firm may avoid disqualification by “moving swiftly to withdraw from its representation” to minimize prejudice to each client concerned); Gould, Inc. v. Mitsui Mining & Smelting Co., 738 F. Supp. 1121, 1126-27 (N.D. Ohio 1990) (applying balanced approach in ruling against disqualification in situation where the conflict of interest was created by an acquisition of the client, and not by the law firm).
Nothing in the Code bars an attorney from employing similar reasoning in carrying out the obligations of Canons 2 and 5. When confronted with a “thrust upon” concurrent client conflict, lawyers should balance several factors in deciding whether they may withdraw from one representation and continue the other, and if so, which client to continue representing. Of course, absent consent, an attorney should not simply withdraw from a representation and continue an adverse one where doing so would compromise material confidences and secrets of what would become the former client. See DR 5-108. Because thrust upon conflicts typically involve totally unrelated matters, however, the requirement of protecting confidences of an ex-client will not always command a particular result. Where confidences will not be placed at risk, the overriding factor should be the prejudice the withdrawal or continued representation will cause the parties, including whether representation of one client over the other would give an unfair advantage to a client. The lawyer must also consider other factors, for example, the origin of the conflict (i.e., which client’s action caused the conflict to arise); whether one client has manipulated the conflict to try to force a lawyer off the matter and is using the conflict as leverage; the costs and inconvenience to the party being required to obtain new counsel, including the complexity of the representation; whether the choice would diminish the lawyer’s vigor of representation toward the remaining client; and, the lawyer’s overall relationship to each client.
The commentary to the Model Rules supports this approach. As under the New York Code, the ABA Model Rules generally prohibit a lawyer from continuing to represent a client where that representation would be directly adverse to another client, or where a significant risk exists that the representation would be materially limited by the lawyer’s responsibilities to the other client.3 Model Rule 1.7(a). However, the commentary to Model Rule 1.7 suggests that in cases in which a conflict arises during the course of representation, and where the conflict was the result of “[u]nforeseeable developments, such as changes in corporate and other organizational affiliations,” the lawyer may have the option to withdraw from one of the representations in order to avoid the conflict. Model Rule 1.7 Comment [5]. The District of Columbia ethics rules, which are based on the Model Rules, have taken this one step further and adopted an express “thrust upon” exception to the general prohibition against simultaneously representing two clients whose interests are directly adverse. DC Rule 1.7(d) provides that where certain concurrent conflicts are not reasonably foreseeable at the outset of representation, a lawyer should seek the opposing party’s consent to the conflict, but if such consent is not given by the opposing party, the lawyer need not withdraw despite the opposing party’s objection. See D.C. Eth. Op. 292 (1999) (interpreting Rule 1.7(d)).
The Restatement also supports a lawyer’s ability to withdraw “in order to continue an adverse representation against a theretofore existing client when the matter giving rise to the conflict and requiring withdrawal comes about through initiative of the clients” so long as the situation causing the conflict was not “reasonably foreseeable” by the lawyer when the lawyer first undertook the representation of the client. Restatement (Third) of the Law Governing Lawyers § 132 cmt. j.
The application of this approach is illustrated by the court cases cited above. In Installation Software Technologies, 2004 WL 524829, for example, a conflict of interest arose when a current client of the law firm representing the plaintiff acquired the defendant and then refused to consent to the dual representation. The plaintiff’s law firm sought guidance from the court by moving for permission to withdraw or for “other relief.” The court denied the motion to withdraw after balancing (i) the prejudice to the non-consenting client, including whether its confidential information was at risk if the law firm stayed in the case; (ii) the financial costs to the plaintiff if it was forced to retain new counsel in the matter (iii) the complexity of the matter, and (iv) the origin of the conflict so as to ensure that the “‘conflict by acquisition’ . . . [did] not become a means for [the defendant] to strategically disadvantage [the plaintiff].” 2004 WL 524829 at *6.
Another example is Gould, Inc. v. Mitsui Mining & Smelting Co. In Gould , a conflict of interest for plaintiff’s counsel arose several years after litigation had commenced, when the defendant acquired a company, IGT, that plaintiff’s counsel represented in unrelated matters. The defendant moved to disqualify plaintiff’s counsel, but the court rejected the motion. In doing so, the court refused to mechanically apply the “hot potato” rule, and took a more flexible approach that balanced the various interests involved. First, the court found that the defendant had not been prejudiced because confidential information had not passed to the plaintiff as a result of plaintiff’s firm’s representation of IGT. Second, disqualifying plaintiff’s firm would cost plaintiff a great deal of time and money in retaining new counsel and would significantly delay the progress of the case, which involved complex technological issues. Finally, the court found that the conflict was created by defendant’s acquisition of IGT several years after the current litigation commenced, and not by any affirmative act of plaintiff’s law firm. Gould, Inc. v. Mitsui Mining & Smelting Co., 738 F. Supp. 1121, 1126-27 (N.D. Ohio 1990); see also University of Rochester v. G.D. Searle & Co., 2000 WL 1922271 (W.D.N.Y. 2000) (ruling against disqualification); Carlyle Towers Condominium Association, Inc. v. Crossland Savings, FSB, 944 F. Supp. 341 (D.N.J. 1996) (ruling against disqualification);AmSouth Bank, N.A. v. Drummond Co., 589 So. 2d 715, 722 (Ala. 1991) (ruling against disqualification).
The scenarios set forth at the outset of this opinion illustrate how these factors may be applied in specific situations. Scenarios 1 and 2 involve situations where a current client has, through a merger or acquisition, become adverse to another client that is a member of the same corporate family. Depending on, among other things, the relationship between Company B and Client C in Scenario 1, and Company C and Client A in Scenario 2, the adversary may or may not be considered a “client” for conflicts purposes. See cases cited supra. on when a corporate affiliate becomes a client for conflicts purposes.
Assuming that a conflict does exist between the clients, however, the law firm would need to balance the factors outlined above in determining which client to represent. For example, in Scenario 1, the law firm would first need to determine who would be most prejudiced by the withdrawal. This would depend in part on the complexity of the breach of contract suit against B and how close to trial the suit is. The closer the suit is to trial, the more Client A would be prejudiced if the law firm withdrew from representation. In contrast, if the law firm had only recently been retained to represent Client A in the breach of contract suit and had yet to engage in extensive discovery, the prejudice to Client A from withdrawal would not be as great. Other factors that would determine which client would be most prejudiced involve, for example, the financial costs to each and whether the lawyer has acquired material confidential information that could be used against the client from whom the lawyer withdraws. In addition, because Client C created the conflict, the law firm should question whether Client C is seeking to use the conflict as leverage to force the law firm off the case involving Client A. As noted inInstallation Software, a “conflict by acquisition” should not give the acquiring client a means to strategically disadvantage Client A, who is in effect an innocent bystander with respect to Client C’s acquisition of Client A’s adversary (Company B). More broadly, we believe that it will generally appear fairer and more understandable to a client whose lawyer withdraws because of a conflict if the client’s action gave rise to the conflict in the first place.
At the same time, if Client C is a large, important client of the firm, the law firm must be wary in applying the balancing test that it is not motivated by purely economic factors to retain Client C. After weighing all of the factors, if the law firm decides that the balancing test favors Client C, it should inform Client A that due to a conflict of interest it must withdraw from representing that client in the law suit against Company B. If the law firm concludes that the factors weigh in favor of Client A, it should inform Client C that it will not withdraw from representing Client A in the breach of contract suit. At that point, it will be up to Client C to decide whether it wishes to consent to the conflict after all, or terminate its relationship with the law firm.
D. Limitations to Opinion
This opinion is not intended to apply other than in cases of a “thrust upon” conflict as defined above.
First, the conflict must truly be unforeseeable. This requirement will often be satisfied in the merger and acquisitions context, as in Scenarios 1 and 2, as long as the law firm represented both clients before the corporate transaction occurred or before the law firm knew it was under consideration. It could be satisfied in other contexts when, for example, a current client unexpectedly appears in an adverse capacity in a government investigation.
Second, the conflict must truly be no fault of the lawyer. So, for example, if the conflict arose because the lawyer did an inadequate conflicts check originally by, for example, failing to check necessary individuals or entities, failing to spell the names of the clients accurately when putting information into a database or by other conduct that is negligent, this opinion does not apply. See, e.g,. N.Y. City Eth. Op. 2003-03 (describing what records a law firm must keep and what policies and systems the firm must implement in order to do adequate conflicts checks).
Third, the conflict must be between concurrent clients. 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 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).
Of course, attorneys must keep in mind that the continued representation of one client after withdrawing from the other must still satisfy DR 5-108, the rule governing former client conflicts. See DR 5-108; Restatement (Third) of the Law Governing Lawyers § 132 cmt. j (continuing an adverse representation against a theretofore existing client “must be otherwise consistent with the former-client conflict rules”). In particular, the confidences and secrets of the former client must be protected, and no attorney may continue an adverse representation, without court approval, even in a “thrust upon” situation, in which material confidences and secrets of either client (or former client) will be placed at risk.
Finally, implementation of the balancing test for thrust upon conflicts must be performed in good faith. Where the attorney’s decision regarding withdrawal appears opportunistic, for example the retained client generates significantly more fees than the dropped client and there are no other factors that weigh in favor of retaining that client, any insistence that the conflict was thrust upon the lawyer, or protestations of prejudice to the major client, may be viewed skeptically. On the other hand, a lawyer who does balance the relevant considerations in good faith should not be subject to discipline for getting it wrong in hindsight.
E. Prophylactic Measures
Lawyers may take several steps to anticipate and potentially avoid concurrent client conflicts. In particular, some conflicts may be avoided by obtaining advance consents from clients to waive conflicts that may come up in the future. Of course, the fact that “thrust upon” conflicts by definition are not reasonably foreseeable may make it particularly difficult in some cases to obtain enforceable advance waivers. Nonetheless, in appropriate instances clients can give informed and therefore effective waivers in advance to a sufficiently described set of circumstances without necessarily knowing all details or the identity of the other client. SeeN.Y. City Eth. Op. 2004-02 (the lawyer seeking an advance waiver should be as specific as possible regarding the types of possible future adverse representations, the types of matters that might present conflicts, and at least the class of potentially conflicted clients); see alsoN.Y. County Eth. Op. 724 (1998); ABA Formal Op. No. 93-372 (1993).
In addition, attorneys may be able to draft the letter of engagement to avoid uncertainty as to whether the representation is ongoing or not, and who is the client. For example, the lawyer could clarify that he or she only represents the client in a particular area or for a particular matter, and representation in any other matter would necessitate a separate agreement.4Similarly, the lawyer could clarify that he or she represents only specified entities within the corporate family, and not current or future affiliates.
4. CONCLUSION
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.
Dated: Jun
471589.4
1. For a more in-depth discussion of when conflicts are consentable, see, for example, N.Y. City Eth. Op. 2001-2 (addressing the circumstances in which it is permissible for a lawyer to represent a client in a corporate transaction whose interests are adverse to a client the lawyer represents in another matter, and both clients consent); N.Y. County Eth. Op. 671 (1989) (addressing the circumstances under which a lawyer who represents a corporate client may represent a second client whose interests are adverse to the first client, and both clients have consented).
2 . See e.g., University of Rochester v. G.D. Searle & Co., 2000 U.S. Dist. LEXIS 19030 (W.D.N.Y. 2000); In re Wingspread Corp., 152 B.R. 861, 864 (S.D.N.Y. 1993); Gould, Inc. v. Mitsui Mining & Smelting Co., 738 F. Supp. 1121, 1126-27 (N.D. Ohio 1990).
3 .Model Rule 1.7 states: “(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: (1) the representation of one client will be directly adverse to another client; or (2) 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. (b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if: … (4) each affected client gives informed consent, confirmed in writing.”
4 . For a more in-depth discussion of the circumstances in which a conflict of interest may be avoided by limiting the scope of a lawyer’s representation of a client, see N.Y. City Eth. Op. 2001-3 (the scope of a lawyer’s representation of a client may be limited in order to avoid a potential future conflict, provided that the client consents to a limited engagement after full disclosure, and the limitation does not render the lawyer’s counsel inadequate or diminish the zeal of representation).
