By Joan C. Rogers
A California lawyer who is unable to obtain waivers to deal with a
“thrust-upon” conflict of interest arising from a corporate client's merger may
ethically withdraw from representing one client and continue to represent the
other if he has not received confidential information from the now-former client
that is substantially related to the matter in which representation is ongoing,
according to a recent opinion from the Orange County bar's ethics committee
(Orange County (Cal.) Bar Ass'n Professionalism and Ethics Comm., Op.
Examining California cases and ethics rules, the committee concluded that
when a conflict develops between two clients as a result of a corporate
acquisition, the more permissive rules governing successive representation are
better suited to resolve the lawyer's dilemma than the stricter rules governing
concurrent representation. Each situation needs careful analysis of the duties
of loyalty and confidentiality, the opinion makes clear.
In the scenario considered by the committee, Attorney A has represented Small
Bio for a decade in patent prosecution matters and continues to represent it.
The lawyer also represents a long-term client (LTC) in patent litigation against
Big Bio. When Big Bio unexpectedly acquires Small Bio, the lawyer is uncertain
about his ethical obligations.
As an initial matter, the committee explained that most California courts
follow the “unity of interests” test set out in Morrison Knudsen Corp. v.
Hancock, Rothert & Bunshoft LLP, 81 Cal. Rptr. 425, 15 Law. Man. Prof.
Conduct 62 (Cal. Ct. App. 1999), for analyzing parent-subsidiary conflicts of
interest, rather than the “alter ego” test set out in Brooklyn Navy Yard
Cogeneration Partners LP v. Superior Court, 70 Cal. Rptr.2d 419 (Cal. Ct.
The committee pointed out, however, these cases arose in the context of
disqualification motions. It cautioned that the California Business &
Professions Code imposes broader ethics obligations, including the duty to avoid
representation of adverse interests, the duty to protect confidential
information, the duty of loyalty to clients, and requirements for mandatory and
Applying the Morrison Knudsen factors, the panel found that under the
particular circumstances, Attorney A's continuing representation of both Small
Bio and LTC does not involve a conflict of interest at this time, because the
law departments of Small Bio and Big Bio are not integrated and no confidential
information about the parent has passed to the subsidiary.
The opinion recommends, however, that Attorney A monitor the circumstances of
the merger and continue to evaluate whether a unity of interests may come to
exist between Small Bio and Big Bio.
If a unity of interest develops, the committee advised, the lawyer may
attempt to resolve the conflict by obtaining informed written consent from both
Small Bio and Big Bio, on the one hand, and LTC on the other, as required by
California Rule of Professional Conduct 3-310(C) when attorneys represent
parties with adverse interests.
Assuming conflict waivers cannot be obtained, the committee said, the next
question is whether the attorney may continue to represent one of the two
adverse clients, and if so, which one.
In a concurrent representation situation, the panel observed, the ethical
duty of loyalty governs whether the lawyer may or must withdraw. The duty of
loyalty may permit--or even require--a lawyer in a thrust-upon conflict
situation to withdraw from representing one or both clients, it noted.
While acknowledging that the “hot potato” rule bars a lawyer from curing dual
representation conflicts by severing a relationship with a pre-existing client,
the committee pointed out that Attorney A did not knowingly undertake the
adverse representation and did not create the conflict.
On the contrary, it noted, Big Bio created the conflict by acquiring Small
Bio, and Attorney A and his law firm are innocents. Attorney A has devoted
substantial resources to both Small Bio and LTC, the committee emphasized.
In a footnote, the opinion cites Gould Inc. v. Mitsui Mining &
Smelting Co, 738 F. Supp. 1121 (N.D. Ohio 1990), which concluded that when a
conflict resulted from client merger activities or other unforeseeable
circumstances that the law firm did not create, the firm may be permitted to
withdraw from its representation of one of the clients, so long as the
withdrawal would not cause undue hardship to the client the firm wants to
The footnote contrasts Gould with Cascades Branding Innovation LLC
v. Walgreen Co., No. 11 C 2519, 2012 U.S. Dist. LEXIS 61750, 28 Law. Man.
Prof. Conduct 295 (N.D. Ill. May 3, 2012), which held that a law firm may not
defend a longtime client in a patent matter because it learned confidential
information about the opponent's likely litigation strategies when it discussed
possible representation in a different patent case with the opponent's parent
The committee concluded that in the scenario under consideration, “Attorney A
may ethically withdraw from representing one client and continue to represent
the other if he has received no confidential information from the now-former
client that is substantially related to the matter in which representation is
To the extent Big Bio is potentially more lucrative than LTC, Attorney A
should not simply drop LTC to appease Big Bio, the committee cautioned.
Otherwise, it advised, Attorney A may withdraw from representing either LTC or
Big Bio if he complies with his ethical duties governing withdrawal under Rule
3-700, which include complying with any court rule that requires permission to
withdraw and taking reasonable steps to avoid harming the client's rights, such
as giving the client due notice and time to hire replacement counsel and
returning client papers and property.
The committee agreed with dicta in Truck Ins. Exchange v. Fireman's Fund
Ins. Co., 8 Cal. Rptr.2d 228 (Cal. Ct. App. 1992), that the disqualification
standard governing successive representation should apply when a lawyer
withdraws from an adverse concurrent representation due to a thrust-upon
In successive representation situations, the committee noted, a lawyer may
continue representing one client if that representation is not substantially
related to the representation of the client from whom he has withdrawn. This
“substantial relationship” test, it said, requires an examination of the
similarity between the factual and legal issues, the extent of the attorney's
involvement, and whether the attorney received confidential information about
the former client that could give its adversary a significant practical
The court in Truck Ins. Exchange reasoned that if representations are
not substantially related and client confidences are not endangered,
disqualifying a lawyer for the mere happenstance of an unseen concurrent adverse
representation would unfairly prevent clients from having counsel of choice and
would penalize a lawyer who had done no wrong.
The committee endorsed that reasoning. While acknowledging some possibility
that a thrust-upon conflict could be viewed as a concurrent conflict requiring
per se disqualification, it concluded that “since a 'thrust-upon' conflict
situation involves the competing interests of 'innocent' parties, we believe
that Truck Insurance Exchange's reasoning is not only correct, but also
provides the best articulation of an attorney's ethical obligations when facing
a 'thrust-upon' conflict dilemma.”
The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.
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