Lawyer Gets Three-Month Suspension For Spilling Prospective Client's Secrets

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By Samson Habte

May 6 — A lawyer acted unethically by discussing a potentially lucrative mineral rights case with a prospective client and then revealing information from that consultation to an existing client that had an interest in the matter, the North Dakota Supreme Court held May 1.

The per curiam decision—which adopts a recommendation to suspend attorney Kerry J. Carpenter for three months—appears to be the first North Dakota disciplinary case to apply the state's version of ABA Model Rule 1.18, which governs lawyers' obligations to prospective clients.

Defining What Rule 1.18 Means

North Dakota's Rule 1.18(b) states: “Even when no lawyer-client relationship ensues, a lawyer who has had discussions with a potential client may not use or reveal significantly harmful information learned in that consultation.”

This matter required the court to clarify the meaning of “significantly harmful information,” a term not defined in Rule 1.18. In doing so, the court rejected the notion that information “contained in public records” cannot qualify as “significantly harmful.”

The court also had to analyze Rule 1.18(d)(2). That provision states that a lawyer who receives “significantly harmful information” from a potential client may nevertheless represent a party with interests adverse to those of the potential client if the lawyer “took reasonable measures to avoid exposure to more significantly harmful information than was reasonably necessary to determine whether to represent the potential client.”

Conflict Over Conflict

Carpenter's disciplinary troubles arose out of his dealings with Martin Thompson, who sought legal help while attempting to acquire mineral deposits that formerly belonged to a decedent named Minor.

Thompson said his 300-hour investigation revealed that Minor bequeathed the minerals to the Boston headquarters of the Christian Science Church. The mineral rights were later valued at $3 million.

Thompson hired attorney Charles Neff to contact the church and negotiate a finder's fee or a sale of the mineral rights. Neff warned the church that its rights were at risk of forfeiture because certain landowners had filed a “notice of lapse of mineral interests.”

According to the bar, the church said it “was not interested in pursuing a claim involving the mineral interests of Minor at that time.” Thompson then approached Carpenter about representing him in the matter.

Carpenter would later say that his prior work for the church on a real estate case precluded him from representing Thompson. But the two men told conflicting stories about when that occurred.

Thompson said Carpenter did not disclose the conflict until after several phone calls and a meeting in which he gave Carpenter “detailed information” about the matter and access to research documents. In a post-meeting letter to the lawyer, Thompson disputed the assertion that Carpenter disclosed the conflict “at the beginning” of their meeting:

I never knew before our meeting that you would not be representing me and it was my impression that at the least we were going to explore to somehow be partners in negotiating a deal with the church as to [the] minerals. Otherwise there would have been no sense in having a meeting.

After the meeting, Carpenter contacted the church's local representative and agreed to file documents to prevent the forfeiture of the mineral interests. Carpenter later represented the church in pursuing its claim to the minerals. He was paid a 12 percent contingent fee.

Potential Client

The disciplinary board found that Thompson was a “potential client” who provided “significantly harmful information,” and that Carpenter violated Rules 1.18(b) and 1.18(c) by using that information when he represented the church in pursuing its claim to the mineral interests.

In affirming, the supreme court rejected the notion that Thompson was not a “potential client” within the meaning of Rule 1.18(a).

That finding, the court said, was supported by evidence that Thompson and Carpenter previously entered into a similar “partnership arrangement” to obtain mineral interests.

‘Significantly Harmful.'

Rule 1.18 does not define the term “significantly harmful.” However, the court cited Wisconsin Formal Ethics Op. EF-10-03, 27 Law. Man. Prof. Conduct 41 (2010), for the proposition that:

Information may be “significantly harmful” if it is sensitive or privileged information that the lawyer would not have received in the ordinary course of due diligence; or if it is information that has long-term significance or continuing relevance to the matter, such as motives, litigation strategies, or potential weaknesses. “Significantly harmful” may also be the premature possession of information that could have a substantial impact on settlement proposals and trial strategy; the personal thoughts and impressions about the facts of the case; or information that is extensive, critical, or of significant use.

The court dismissed the notion that public information cannot be deemed “significantly harmful.”

The justices said they recognized that publicly available records generally are not considered confidential. “But it is quite another matter when a person devotes more than 300 hours searching public records for pieces of a puzzle in an attempt to locate a deceased's heirs,” the opinion states. “The information collected by Thompson was valuable to Thompson, and was sensitive information Carpenter would not have received in the ordinary course of due diligence.”

No Exception

The court said Carpenter could not invoke the exception in Rule 1.18(d)(2) because he failed to take steps to ensure that Thompson did not disclose more significantly harmful information than was reasonably necessary for Carpenter to determine whether to accept Thompson as a client.

The court said a three-month suspension from practice was justified because Carpenter “knowingly” violated ethical duties, caused “actual harm” to Thompson and evidenced a “selfish motive” and “refusal to acknowledge the wrongful nature” of his misconduct.

Although the board also found that Carpenter violated Rule 1.7 on conflicts of interest, the court opted not to address that charge. It explained that “Unnecessary ‘stacking' or ‘piling on' of rule violations for the same conduct is discouraged.”

Brent J. Edison, Bismarck, N.D., represented the disciplinary board. Tschider & Smith represented Carpenter.

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