November 19, 1993
A lawyer may represent multiple potentially responsible parties [PRPs] at a single Superfund site, provided that (a) a disinterested lawyer would reasonably conclude that the representation of each client will not be adversely affected by the multiple representation, and (b) each client consents after full disclosure and consultation.
Where the interests of an owner and a generator at a single Superfund site are fundamentally antagonistic, a lawyer may not undertake representation of both parties where the representation would include allocation issues.
Where it is likely that a central issue will involve a dispute over the division of PRPs into classes of de minimis PRPs versus major PRPs, a lawyer may not represent both de minimis and major PRPs at the Superfund site where the representation would include allocation issues.
References: MRPC 1.7; R-10; RI-66, RI-89, RI-98, RI-111, RI-108, RI-134.
A landfill has been identified as a Superfund site. Two successive owners, several transporters, and 196 generators have been identified as Potentially Responsible Parties (PRPs). The Environmental Protection Agency (EPA) has put all those parties on notice of their alleged liability and has produced a volumetric ranking of the wastes contributed by each of the PRPs. That ranking shows that there are 17 major PRPs (each over 1% by volume and 179 de minimis PRPs (each under 1% by volume).
The firm has been asked to represent one owner, two of the major PRPs, and 13 of the de minimis PRPs. The firm has described the relationship between the owners and generators as "antagonistic by definition." The firm further has related that "there is a virtual certainty that battle lines will be drawn around the 1% de minimis benchmark." The firm asks the following questions:
- May the firm represent multiple parties within one of the two groups of generators at this site? If so, what steps are necessary to undertake the representation?
- May the firm represent both major and de minimis generators at this site? If so, what steps are necessary to undertake the representation?
- May the firm represent both owners and generators at this site? If so, what steps are necessary to undertake the representation?
Superfund proceedings present unique conflict of interest problems for clients and lawyers alike. To more fully understand these unique issues and respond to the above questions, it is necessary to make some general observations regarding Superfund proceedings. It should be emphasized, however, that each specific case presents a unique set of facts and circumstances, and that this opinion is limited to the facts provided by the inquirer.
Under CERCLA, 42 USC Section 9601, et seq., Superfund proceedings generally commence following an initial EPA search for PRPs. PRPs are those who may become liable to pay for "response costs," the cost of clean up, the cost of investigation to determine the nature and extent of contamination and to prepare a clean up plan, the EPA's administrative costs, and certain other potential expenses. PRPs generally fall into the categories of owners (current and former), transporters (dumpers), and generators of the hazardous substances hauled to the site.
Once the EPA has identified a PRP and decided to include that company on the PRP list, it normally sends what is known as a "General/Special Notice Letter," which includes a demand for disclosure of information and production of documents concerning the PRP's involvement with the site. This demand is commonly referred to as a "104(e) request," based upon Section 104(e) of CERCLA. All listed PRPs must then make this disclosure.
A CERCLA case commonly consists of three major phases. In the initial phase, someone (either EPA, a state, or one or more PRPs) undertakes a Remedial Investigation and Feasibility Study to determine the nature and extent of contamination, evaluate the risk to the environment and to public health, identify potential methods of clean up, and do a comparative evaluation of those methods. Such study may take years to complete and cost millions of dollars.
The EPA then decides what method of clean up should be implemented, issues a Record of Decision, and the next phase begins. This includes Remedial Design (detailed engineering) and Remedial Action, to perform the required clean up. Lastly is the cost recovery phase, where the EPA (or state agency) seeks reimbursement of administrative and oversight costs. It is further at this juncture that determinations must be made as to who is going to perform the clean up work and, more importantly, who is going to shoulder the costs of this work.
The EPA has the option of undertaking the work itself and seeking recovery of the cost from the PRPs. Alternatively, the EPA may issue a Unilateral Administrative Order (UAO) under Section 106 of CERCLA, ordering one or more of the PRPs to do the work in the manner specified by EPA. A party who receives a UAO or Section 106 Order and does not respond to the satisfaction of EPA is faced with a potential claim for treble damages and stiff daily penalties.
Prior to invoking either of the above alternatives, the EPA will commonly attempt to settle the matter with the PRPs. In 1986, CERCLA was amended to specifically authorize settlements with de minimis PRPs. EPA generally favors such settlements, since a settlement with de minimis parties generates some money for its case early on, and substantially reduces the number of PRPs with which it must deal. Any recovery from the de minimis PRPs also reduces the potential exposure of the major PRPs. Thus major PRPs are likewise generally in favor of an early settlement with the de minimis PRPs.
Although CERCLA, as amended in 1986, authorizes the EPA to prepare an advisory, non-binding allocation amongst the PRPs, it rarely chooses to do so. Since PRPs are potentially jointly and severally liable at a particular site, both the EPA and the PRPs generally prefer to leave the issue of allocation to the PRPs.
The generators and perhaps other participants at a particular site often organize and form a steering committee to deal with the EPA as a group. Such parties are often perceived as having a community of interest in dealing with the EPA which transcends disputes among individual parties. They generally work towards execution of a Participation Agreement, which among other issues, provides a mechanism for determining the respective shares of liability of the various generators or other participants.
Because a typical Superfund site involves so many parties within a certain geographical area, many firms, especially the larger ones, may find a substantial number of their regular clients identified as PRPs. One current site in Michigan has over 800 PRPs.
Having so many parties identified as PRPs often presents those parties with problems in obtaining specialized representation at a reasonable cost. It would generally be impractical, if not impossible, for each party to have separate counsel. Transaction costs for a party can be minimized through common representation. Most clients further prefer, whenever possible, to stay with counsel familiar with their business and operations. If any given firm may represent only one PRP at any given site, most clients will be unable to obtain specialized representation at a reasonable cost, will be forced to utilize unfamiliar counsel, and there are serious questions raised regarding the sufficient availability of competent counsel experienced in Superfund matters.
There is unquestionably a potential for conflicts of interest to arise at various stages of Superfund proceedings. PRPs may initially challenge other PRP designations as de minimis vs. major. Owners and generators are almost always antagonistic on issues of allocation. Major and de minimis PRPs may argue over the appropriate levels of contribution by the de minimis PRPs. PRPs may challenge the accuracy and/or completeness of another PRP's Section 104(e) disclosure. Major PRPs may argue over allocation of clean up and other costs. All of these scenarios are possible in any given case. In light of this potential for conflicting interests, the issue becomes how the legal profession can ethically, competently and efficiently service the needs of clients named in a Superfund proceeding.
The interpretation and application of conflict of interest rules involves a balancing of important, and sometimes competing values. First and foremost are the lawyer's duty of loyalty to the client and the need to preserve and protect client confidences. Secondly, clients and the public have countervailing concerns about reducing the costs of representation and achieving the benefits of a coordinated position in their cases. Of less import are the economic interests of the lawyer. See, generally, Annotated Model Rules of Professional Conduct, 2nd Ed., American Bar Association (1992), p 109; Restatement of the Law Governing Lawyers, Tentative Draft No. 3, The American Law Institute (1990), pp. 178-179.
The avoidance of potential conflicts can impose significant costs on lawyers and clients alike. As noted in the Restatement of the Law Governing Lawyers:
"Any prohibition of conflicts of interest should guard against being broader than necessary. First, conflict avoidance can make representation more expensive. To the extent that conflict of interest law prevents multiple clients from being represented by a single lawyer, one or both clients are put to the necessity of finding additional lawyers. That may entail uncertainty concerning the successor lawyer's qualifications, usually additional cost, and the inconvenience of separate representation. Second, conflict avoidance tends to interfere with client expectations. At the very least, one of the clients may be deprived of the services of a lawyer whom the client had a particular reason to retain, perhaps based on a long time association with the lawyer. Indeed in some communities or fields of practice, there may be no lawyer who is perfectly conflict-free." Restatement of the Law Governing Lawyers, Tentative Draft No. 3, The American Law Institute (1990), p. 76.
It is with these principles in mind that the questions addressed in this opinion are answered.
The questions posed in this case involve varying degrees of potential conflicts among multiple parties. The issues presented are principally governed by MRPC 1.7, which states:
"(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to any other client, unless:
"(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and
"(2) each client consents after consultation.
"(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:
"(1) the lawyer reasonably believes the representation will not be adversely affected; and
"(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved."
When dealing with potential conflicts, the controlling considerations are the likelihood that such conflicts will arise and the materiality of such conflicts. See Comment to Rule 1.7:
". . . A possible conflict does not itself preclude the representation. The critical questions are the likelihood that a conflict will eventuate and, if it does, whether it will materially interfere with the lawyer's independent professional judgment in considering alternatives or foreclose courses of action that reasonably should be pursued on behalf of the client . . . ."
Under MRPC 1.7(b), it may be permissible for a lawyer to represent multiple de minimis PRPs at the subject site if a disinterested lawyer would reasonably conclude that the representation would not be adversely affected and each client consents after full disclosure. Given that de minimis PRPs in Superfund proceedings often settle according to a set multiplier (premium) of their volumetric contribution to the site, their interests are often aligned. In the case of multiple de minimis PRPs, there is little likelihood of material conflicts arising. The comment to Rule 1.7 states in part that: ". . . common representation is permissible where the clients are generally aligned in interest even though there is some difference of interest among them." This evaluation by the lawyer must be made on a case by case basis.
It may also be permissible under MRPC 1.7(b) to represent multiple major PRPs at the subject site, if a disinterested lawyer would reasonably conclude that the representation would not be adversely affected, and each client consents after full disclosure. The lawyer must consider the likelihood of conflicts arising between the major PRPs which would materially limit the lawyer's representation. Where the interests of such PRPs are generally aligned and there are only slight differences of interest among them, a disinterested lawyer could reasonably conclude that the representation will not be adversely affected. On the other hand, where there is a likelihood that conflicts will later arise which will materially limit the lawyer's representation, a disinterested lawyer could not reasonably reach this conclusion.
This evaluation must take into account the purpose of the joint representation. Where the purpose of representation is to deal with the EPA or other groups of PRPs on issues common to a particular group of PRPs, there is much less likelihood of conflicts later arising that will materially limit the lawyer's representation. On the other hand, where allocation issues are involved in the representation and there are no prior agreements regarding division of responsibility, there is a much greater likelihood that the conflicts will materially limit the lawyer's representation, and it would be unlikely that a disinterested lawyer could reasonably conclude that the representation will not be adversely affected. Again, this evaluation must be made on a case by case basis.
As noted, this common representation would only be permissible upon obtaining consent of all the clients after full and complete disclosure of the advantages and risks of such multiple representation. Full disclosure must be made of these advantages and risks such that a client may make an informed judgment concerning the advisability of the multiple representation. This disclosure should include the effect of multiple representation on the potential waiver of the client-attorney privilege.
Additionally, the fact that multiple representation may be initially undertaken, does not mean that circumstances will not later arise which require withdrawal from representation from some or all clients. See MRPC 1.16. For example, in RI-98 and RI-134, where representation of multiple plaintiffs was undertaken, the lawyer was later forced to withdraw when the parties were in disagreement concerning the subject of settlement. Part of the disclosure to multiple clients should include discussion of this possibility and the risks attendant thereto.
On the other hand, it might not be permissible for an individual lawyer to represent other multiple PRPs at this site. Representation of an owner and generator, absent a prior binding agreement on division of responsibility, would not be permissible if their interests are "antagonistic" as described. See MRPC 1.7(a), "directly adverse." While generators may have some objective measurement of their contribution to a particular site, whether by volume, toxicity or otherwise, there is generally no available objective measurement for the relative responsibility of owners vs. other PRPs. There is thus often a significant dispute between the owners and other PRPs as to their respective shares of responsibility. Because these interests are so clearly antagonistic, a disinterested lawyer could not reasonably conclude that the representation of one client will not be materially limited by the lawyer's responsibilities to the other, at least as to common representation on allocation issues. See RI-66. Client consent does not vitiate the conflict in such a situation. See R-10; RI-108, RI-111, RI-98, RI-89. Concurrent representation of owners and generators must be viewed on a case by case basis and with a view towards the scope of the issues to be include in the joint representation.
Nor would it be permissible under the facts presented here for a lawyer to represent both de minimis and major PRPs at the subject site if any portion of the representation included allocation issues. The facts provided in this inquiry state that "there is a virtual certainty that battle lines will be drawn around the 1% de minimis benchmark . . . [the inquirer] believes that MRPC 1.7(b)(1) cannot be satisfied if we were to represent both major and de minimis PRPs." Given that the requesting lawyer recognizes this substantial likelihood of material conflicts, a disinterested lawyer could not reasonably conclude that the representation will not be adversely affected. Thus the lawyer may not represent both de minimis and major PRPs at the subject site, at least as to common representation on allocation issues.
The goal of the profession is to serve clients in a competent, ethical and efficient manner. Superfund proceedings present unique problems, where multiple firm clients are often notified as PRPs for a particular site. If such clients are to obtain competent representation at a reasonable cost, then access to regular counsel must be available. If any given firm can only represent a single PRP at a particular site, these client needs simply cannot be met.
Permitting some multiple representation of PRPs whose interests are only potentially adverse, or by limiting the scope of the representation to issues of common goals and interests, permits clients access to and representation by the firm of their choosing. This strikes an appropriate balance between the need to maintain high ethical standards in the profession, while being able to render competent legal representation at a reasonable cost.