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A law firm that participates in a beauty contest or other preliminary meeting with a potential client but ends up not being retained may in some instances represent a client with adverse interests in the same or a related matter by making efforts to limit the information received, seeking informed consent, and using ethics screens, according to a recent opinion from the New York City bar's ethics committee (New York City Bar Ass'n Comm. on Professional Ethics, Formal Op. 2013-1).
In a comprehensive look at New York's rule on duties to prospective clients, the committee explained the rule's restrictions and analyzed exceptions to them. It also illustrated its guidance by applying the rule to three hypothetical beauty contests. The opinion supersedes New York City Formal Ethics Op. 2006-2, which was issued before the state adopted the prospective-client rule.
The opinion focuses on New York Rule of Professional Conduct 1.18, which was adopted in 2009 when the Empire State replaced its former ethics code with versions of the ABA Model Rules. See 24 Law. Man. Prof. Conduct 666.
New York's rule largely follows Model Rule 1.18 but differs in several ways, most notably by defining “prospective client” to exclude those who are trying to disqualify a lawyer or who convey information without any reasonable expectation that the lawyer is willing to discuss the possibility of representation.
The committee advised that Rule 1.18 imposes two main duties on a lawyer who has had discussions with a prospective client about a matter. Both obligations “are determined by the nature of the information obtained from the prospective client,” it said.
First, paragraph (b) restricts the lawyer from using or revealing information learned in a consultation with a prospective client to the same extent that the lawyer would be constrained from using information about a former client.
The former-client restriction, the committee explained, is set forth in Rule 1.9(c), which provides that a lawyer may not (1) use an ex-client's “confidential information” to the disadvantage of the ex-client, or (2) reveal the former client's “confidential information” that is protected by Rule 1.6, which governs confidential information of a current client.
Accordingly, the committee advised, the information restriction in Rule 1.18(b) does not apply to information of a prospective client that is not “confidential information” or to the extent the exceptions in Rules 1.6 and 1.9 would permit confidential information of a current or former client to be used or revealed.
The panel also pointed out that the information restriction in paragraph (b) applies only to “information learned in the consultation,” whereas Rules 1.6 and 1.9 apply to all confidential information gained “during or relating to the representation of a client, whatever its source.”
Finally, it noted that paragraph (b) incorporates the use restriction from Rule 1.9, not Rule 1.6, and thus prohibits only use of protected information to the disadvantage of the prospective client, whereas Rule 1.6 more broadly forbids use of protected information to the advantage of the lawyer or third party.
The other main duty under Rule 1.18, the committee advised, is in paragraph (c), which disqualifies the lawyer and his firm from representing a client with materially adverse interests in the same or a substantially related matter if potential use of information received from the prospective client could be significantly harmful to the prospective client in that matter.
This restriction on representation applies, the committee said, only if the lawyer is subject to the information restriction in paragraph (b) and received disqualifying information, and thus is narrower than the corresponding restrictions on adverse representation that apply with regard to former and current clients.
The committee said the “significantly harmful” test makes this restriction less exacting than the restriction in Rule 1.9(a) on representation of a former client. The bar in Rule 1.9(a) applies, it noted, if the relevant parties' interests are materially adverse and the matters are the same or substantially related, whether or not the lawyer received any harmful information from the former client.
“Under Rule 1.18, in contrast, materially adverse interests do not bar the representation in the absence of significantly harmful information,” the opinion states.
Drawing on a comment to Rule 1.18, the committee said that whether information is significantly harmful depends on its potential use--that is, whether it could be significantly harmful to the prospective client if used in the matter. Thus, a lawyer may not avoid the restriction on representation merely by resolving not to make any actual use of the information, it advised.
Rule 1.18(d) expressly allows the lawyer and his firm to accept a representation otherwise forbidden by paragraph (c) if both the prospective client and the affected client have given informed consent, confirmed in writing.
Informed consent also may be used as a way to comply with the restriction in paragraph (b) on using or revealing information even though paragraph (d) does not expressly say so, the committee advised. It grounded this guidance on the fact that paragraph (b) effectively incorporates the relevant exceptions in Rules 1.6 and 1.9.
With regard to getting consent that is adequately informed, the committee suggested that a sophisticated organizational client may need to be told little more than that the law firm would be free to use or reveal information received in the consultation or to represent others with materially adverse interests in the same or any related matter, in the event the organization does not hire the firm.
As for documentation, the panel advised that because Rule 1.6 does not require informed consent to be confirmed in writing, informed consent should not have to be in writing for the purpose of use of information under Rule 1.18(b). In contrast, paragraph (d) does require informed consent to be in writing to remove the restriction on representation in paragraph (c), it noted.
The committee also said that while no signature is required, documenting informed consent in signed writings from the prospective client and from the affected client may be helpful as an evidentiary matter to support the conclusion that the consent was both informed and actually obtained.
Rule 1.18(d) expressly permits a disqualified lawyer's firm--but not the disqualified lawyer--to take on an otherwise forbidden representation if the disqualified lawyer took reasonable steps to limit his exposure to disqualifying information and the lawyer is screened from the matter.
The committee concluded that ethics screens also can be used to comply with the restriction on using or revealing information in paragraph (b). Because screens are an appropriate means to rebut a presumption of shared confidences within a law firm, “we believe that, if a law firm implements an ethical screen as contemplated in Rule 1.18(d), it may rely on the screen to comply with paragraph (b) as well as paragraph (c),” the opinion states.
The committee noted that paragraph (d), as a condition for relying on the screening exception, requires the lawyer who discussed representation with the prospective client to take reasonable measures to avoid exposure to any disqualifying information beyond what is reasonably necessary to determine whether to represent the prospective client.
Necessary information includes but is not limited to what the lawyer needs to run a conflicts check, the committee stated. Rather, it “may encompass any information reasonably necessary to enable the lawyer to decide whether to pursue a representation.”
We believe that a lawyer may do so by informing the prospective client that they do not have a lawyer-client relationship and that the prospective client should provide the lawyer only such information as is necessary to enable a lawyer to decide whether to take on the representation. Other steps may also suffice. We note that paragraph (d) requires the lawyer to take reasonable measures to limit the receipt of information as specified; it does not require that the information received in fact be so limited.
An ethics screen may be used even though the disqualified lawyer discloses information to a limited number of lawyers in the firm to enable them to evaluate the firm's duties or decide whether to take on the representation, the committee said. However, these lawyers are also disqualified and must be screened from working on the matter along with the lawyer who spoke to the prospective client, it emphasized.
The firm should assess its ability to implement, maintain, and monitor screening procedures before undertaking or continuing the adverse representation, and should evaluate whether the screen would be rendered ineffective under the circumstances if the disqualified lawyer were allowed to work on other matters with lawyers working on the screened matter, the panel said. Notice and implementation of the screen within the firm should be prompt, it added.
The committee fleshed out its guidance by applying Rule 1.18 to three hypothetical beauty contest scenarios, two dealing with litigation and one involving a transactional matter.
In one scenario, a firm unsuccessfully competes for a company's litigation matter, but receives no confidential information along the way. Neither the lawyers who participated nor the firm itself would be barred from representing the company's adversary in the litigation, the committee advised.
In another hypothetical, a firm unsuccessfully competes to represent a company in a litigation matter, but this time it receives confidential information about the underlying facts and legal theories. The firm may represent the company's litigation opponent only if it can meet the requirements for an effective ethics screen, according to the opinion.
In the third scenario, a law firm competes in but doesn't win a beauty contest to represent a company in submitting a bid to acquire another entity. In evaluating whether the firm may represent another bidder in the auction, key considerations for the firm will be whether the information it learned meets the “significantly harmful” test and whether the other bidder's interests are materially adverse to those of the company that conducted the beauty contest.
For each of these scenarios, the committee provided a detailed analysis that reinforces its ultimate conclusion: “Application of the Rule will depend on the nature of the information received from the prospective client: is it confidential and would its use by the lawyer disadvantage or be significantly harmful to the prospective client?”
Copyright 2013, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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