July 17, 1980
A lawyer may not represent one client on a claim against another client in litigation, nor may the attorney, while still in the employ of both clients, draft an assignment of the subject matter of the litigation to a third party.
A lawyer may, however, represent one client on a claim 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 information upon which the lawyer proceeds does not involve reliance upon confidential communications or secrets imparted to the lawyer by the former client.
References: DR 4-101(C), DR 5-101.
Your firm has represented a longstanding corporate client (client A) over the past ten years. Two years ago, you represented this client in a land contract to sell real estate to a third party. Subsequent to that transaction, your firm represented the other party to the land contract (client B) over a two-year period on varied legal matters, exclusive of the land contract transaction.
Client B has now undergone financial difficulties that have resulted in its failure to pay both substantial attorneys' fees to your firm and the last five monthly payments on the land contract. Client A has requested your firm to take action against client B on the land contract, and inquire whether your firm may do so.
Canon 5 concerns the problem of the exercise of your independent professional judgment. Canon 4 requires a lawyer to "preserve the confidences and secrets of a client."
C-7 and CI-250 indicates that before a lawyer may bring an action against a former client all business relations must cease. The subject matter of the new representation may not be substantially related to that of the old and the information upon which the lawyer proceeds must not involve reliance upon confidential communications or secrets imparted to the lawyer by the former client. See also CI-435.
The rule stated above would require that all aspects of the business relation cease, including, but not limited to, your fees being paid in full. If this has not occurred, then some continuing obligation of loyalty to your "former" client remains. See CI-486.
From the facts given, it appears that your firm's business relationship with client B has not ceased. Although you indicate that your firm has advised client B that it will not represent it any further until your outstanding attorney's fees are paid, you may be obligated because of your past representation to advise client B concerning rights that would otherwise be lost in the interim between your representation and that of a new attorney. That you perceive some continuing loyalty to client B is further indicated by your second question: If you firm can represent client A against client B in the land contract action, "what effect would there be if the firm continued to represent client B on other unrelated legal matters?"
In this situation of simultaneous representation of tow clients with conflicting or differing interests, the code does not allow you to continue the multiple employment if it will adversely effect your independent professional judgment on behalf of either client. DR 5-105(B). You should resolve all doubts against the propriety of such joint representation, particularly where one client opposes another in litigation. See EC5-15.
Your current continuing obligation to client B, combined with a possible desire to continue such representation in other matters, makes it difficult to understand how you could adequately advise and represent it in some matters while advising and indeed bringing suit against it in another. In fact, such simultaneous representation of two clients, even in entirely unrelated matters, has been grounds for disqualification by the courts. See Cinerama 5, Ltd. v. Cinerama, Inc., 538 F.2d 1384 (1976). You should therefore decline any further representation of client B in any matter, as long as the conflict between A and B continues.
You next inquire whether the answer to the propriety of representing client A would be different if your firm drafted an assignment of the land contract for client B to client B's affiliated company, charging client B attorney's fees involved in this assignment.
The propriety of drafting such an assignment, while still in the employ of both clients, raises all of the issues discussed above. Once again, it is difficult to understand how you could adequately represent both A and B, when drafting the assignment could have deleterious consequences for either client. You should therefore decline to draft such a document.
However, if your firm does completely terminate all business relations with client B, including final settlement of all fees, then the propriety of your representation of A depends upon whether your past representation of B has provided you with confidential information which could be used against your former client. Your past representation of B appears to have covered a wide range of matters. If any of this information is in any way relevant to the land contract action, then you may not represent A against B unless B consents to the representation; following full disclosure of all confidences and secrets which you have gained as a rest of the previous representation, as well as the legal and practical use to which they could be put in the land contract action. DR 4-101(B) and (C)(1); CI-465.
If following this disclosure process, client B consents to your representation, you should be ware that you run a risk that such consent could be withdrawn by B at a later time if the conflict between the parties sharpens. This would probably necessitate your complete withdrawal at that time. See DR 2-110(B)(2); ABA Informal Opinion 1125. This risk is greatest where the former client moves to disqualify an adversary's attorney in litigation, as could happen in your situation. See, e.g., Emle Industries v. Patentex, Inc., 478 F.2d 562 (1973). In your situation involving such extensive past representation, it seems likely that client B may object to your proposed representation of A, either now or in the future. Thus, even though the Code allows you to seek the consent of the former client, it is advisable, if you choose to seek such a waiver, to suggest that your former client seek independent counsel before giving its consent. See CI-492.
If the former client consents following this procedure, your representation of A is subject to one additional requirement. DR 5-101 requires you to disclose to A the extent to which your independent professional judgment would be affected by the past representation. The representation would be allowed so long as you fully disclose any interest, including loyalty to B, which could compromise or affect your judgment.
If the information obtained from the former client is in any way relevant to the proposed representation, then the attorney may not represent the new client unless the former client consents to the representation following full disclosure of the use of his or her confidences or secrets.
In either case, the current client must also consent to the representation following full disclosure of any interest of the attorney on behalf of the past client.
Accordingly, your representation of client A will depend upon whether your representation of client B has ceased, the nature of the information received from B, and its relevancy to the new action. If all business relations with B have ceased and there is any question in your mind that you will violate DR 4-101, then you must obtain the consent of your former client before proceeding with client A's case against B. If you cannot obtain B's consent, you must withdraw from any further representation of A in the matter. See DR 2-110(B)(2); CI-465; CI-486. Your proposed representation of A also depends upon its consent following the disclosure required by DR 5-101. This disclosure process must be offered to B first, in order to avoid disclosures of those confidences to the proposed client. See CI-471 and CI-492.