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Ethics Opinion

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RI-35

November 9, 1989

SYLLABUS

    It is improper for a lawyer to enter into an attorney-client relationship with a business that is in constant, and often adverse, interaction with the lawyer's former client and employer of many years and where:

    a. the subject matter of the new representation is certain to be substantially related to the subject of the former representation;

    b. the former client has not consented to the new representation; and

    c. the lawyer's representation and knowledge of the former client was so broad and intimate as to make an unintentional breach of confidences of the former client inevitable.

    References: MRPC 1.9; CI-276, CI-304, CI-471, CI-918, CI-937, CI-993, CI-1112; Chugach Electric Ass'n v. United States District Court, 370 F2d 441 (CA 9 1966); Haagen-Dazs Co Inc v. Perche No! Gelato Inc, 639 F Supp 282 (ND Cal 1986).

TEXT

A lawyer served a corporate client as private lawyer and inside counsel for over 30 years, then served the corporation on retainer for another five years. Several administrative departments reported to the lawyer as inside counsel. The lawyer represented the corporation in its relations with distributors, participated in board meetings, supervised disciplinary actions of individual distributors, drafted rules of conduct for distributors, and was principal coordinator of all corporation litigation matters.

While the retainer contract was running the lawyer was contacted by the distributors association, with whom the lawyer entered into an agreement as follows:

    "As you know, I am on a retainer arrangement with the Corporation until [date]. Accordingly, I would not be able to represent either the Board or the Association until [date]. From and after that date, however, I would be very interested and willing to consider representation of the Board and the Association. It must be understood, however, that such representation will of necessity be limited in that I, because of the Code of Professional Conduct, could not disclose any matters covered by attorney-client relationship with [the former client] Corporation or any of its subsidiaries during the period [in which the lawyer handled the corporation's legal matters]. I likewise would not be able to represent the Board or the Association in any adversarial capacity including litigation relative to any issues which may have occurred during that same period of time. Additionally I would not be in a position to challenge either the validity or the reasonableness of any of the Corporation Rules of Conduct most of which have been drafted by me, although I would be permitted to express my opinion with respect to any interpretation of any specific rule."

On several occasions corporation executives have expressed concern about a possible conflict of interest in the lawyer's representation of the distributor's association. The lawyer seeks guidance on these issues.

MRPC 1.9 states:

    "A lawyer who has formerly represented a client in a matter shall not thereafter:

      "(a) represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after consultation; or

      "(b) use information relating to the representation to the disadvantage of the former client except as Rule 1.6 or Rule 3.3 would permit or require with respect to a client or when the information has become generally known."

The Committee addressed conflict situations with a former client under the former Michigan Code of Professional Responsibility. In CI-276, a lawyer was permitted to represent potential plaintiffs where the lawyer was previously associated with the potential defendant, where the transaction occurred subsequent to termination of employment with the defendant and the lawyer was without prior knowledge of the situation and was not sought out because of previous representation of the defendant.

In CI-304, a lawyer who previously represented a business concern only in labor relations matters could not represent a claimant against the business following termination of the lawyer's representation of the business, where the claim arises from working conditions at the business premises.

In CI-471, a lawyer was permitted to represent a client in contract negotiations where the lawyer previously represented the opposing party, provided that the former client consents to the proposed representation following full disclosure of the use of confidences and secrets.

In CI-937, a lawyer could not represent a client against a former client where the claim in the new representation involved the same subject matter for which the lawyer was formerly employed.

A lawyer may pursue claims against a former client if all business relations with the former client have ceased, the subject matter of the new representation is not substantially related to that of the old, and the lawyer does not rely upon confidential communications or secrets imparted to the lawyer by the former client. CI-918, CI-993, CI-1112.

In Haagen-Dazs Co Inc v. Perche No! Gelato Inc, 639 F Supp 282 (ND Cal 1986), the court focused on whether the issues raised in the litigation were "substantially related" to any issues dealt with by the lawyer while representing the former client. When faced with a disqualification motion the court need not determine that actual confidences relating to the present litigation were disclosed to the lawyer. "Rather . . . it is the possibility of the breach of confidence, not the fact of the breach, that triggers disqualification." 639 F Supp 282, at 285.

Although the present and former clients in this inquiry are not currently involved in adversarial litigation, the close interaction of the association and the corporation provides numerous opportunities for future disagreement. Not only did the lawyer represent and coordinate the representation of the corporation in litigation matters, but as a member of the management committee and the board of directors the lawyer was directly involved in the day-to-day business organization of the corporation. Further, the lawyer was directly involved in the business interaction between the corporation and the association, issues that the lawyer will face again directly as counsel for the new client. The lawyer's extensive knowledge of the private and confidential matters of the corporation's business necessarily provides the lawyer with greater insight and understanding of the corporation's actions, and is certain to color the lawyer's thought processes while working with the association.

In Chugach Electric Ass'n v. United States District Court, 370 F2d 441 (CA 9 1966), the court noted that the prior client does not bear the burden of specifying what particular piece or type of secret or confidential information cause the conflict of interest. Disqualification is required even though the court finds no actual conflict of interest to be clearly established, and even though the court was satisfied with the lawyer's good faith in resisting disqualification.

We doubt whether the lawyer can actually offer to serve the association in the limited fashion outlined. If the lawyer is to serve as counsel for the association, and the nature of the new client's business necessarily brings them into constant contact with the former client, the lawyer could in fact be disqualified from any representation of the association in its business matters. A lawyer's duty is to zealously and competently represent clients, and in this case such representation is not possible. Further, if in fact the new client principally desires to assign to the lawyer the task of rebuilding a bridge between the association and the corporation, the lawyer could better serve that task by operating as a consultant to the firm rather than as counsel.

It would be improper for the lawyer to enter into a lawyer-client relationship with a business that is in constant, and often adverse, interaction with a former client and employer of many years, without the consent of the former client. Even though all business relations with the former client have ceased, the intimacy and breadth of the prior relationship with the former client makes it certain that the subject matter of the proposed representation will be substantially related to that of the former representation and inevitable that an unintentional breach of confidences of the former client will occur.

 
     

 

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