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CHICAGO--What exactly does it mean to say a lawyer has a fiduciary obligation to her clients?
If you look it up in the dictionary, as did J. Charles Mokriski of Proskauer Rose in Boston, you find words like trust, loyalty, confidentiality, freedom from conflicts of interest, competence. It's a “protean concept,” said Mokriski, and “one of our jobs is to try to cabin it.”
Mokriski moderated a panel entitled “Lawyers' Fiduciary Duty to Clients: How Far? How Wide? How Long?” presented by the Association of Professional Responsibility Lawyers on Aug. 4 at the group's annual meeting in Chicago.
Mokriski began by observing that the Model Rules themselves don't mention fiduciary duty. [The phrase does surface in a few comments, though, mostly those relating to the prohibition in Model Rule 1.8 against sexual relations with clients.] But the conflicts rules are often used as a surrogate for the fiduciary aspect of the lawyer-client relationship.
A lawyer may not take on a representation in another matter that is directly adverse to a current client without the client's informed consent. The hot spot in this part of the panel discussion was the meaning of direct adversity.
Panelist Henry C. Dinger of Goodwin Procter, Boston, explained that in its simplest form the prohibition means a lawyer doing work for Client A may not represent Client B in B v. A, and may not undertake any representation that would entail attacking the lawyer's work for Client A.
A lawyer for a patent owner, he explained, may not also represent a company challenging the validity of the patent. The degree to which courts condemn this conflict can be inferred from recurring references to fouling the nest and side-switching--phrases of disapproval that, like appearance of impropriety, come up not infrequently, according to Mokriski.
Dinger offered a hypothetical based on a streamlined version of the facts in Andrew Corp. v. Beverly Mfg. Co., 415 F. Supp.2d 919, 22 Law. Man. Prof. Conduct 138 (N.D. Ill. 2006). May a lawyer continue working on a noninfringement letter for her client Widget Company after discovering that the firm she has just joined is counsel to Gadget Company--and Gadget Company owns the patent she's analyzing for Widget? She took the assignment with her, and Widget would like her to complete it. Her new firm represents Gadget in litigation enforcing the same patent against other companies (though not in any litigation against with Widget), but the patent-owner's name was not part of the conflicts-check, so no one realized there would be a problem.
Widget's general counsel doesn't see a problem. The lawyer is working as their outside counsel and has never represented Widget in connection with its new product, and she has never had any contact with anyone from Gadget. All Widget wants from her is legal advice. If negotiation or litigation becomes necessary, Widget will hire a different lawyer. Widget would of course hang on to the opinion letter, which it's already paid for, Dinger added.
It's not direct adversity, Mokriski said; it's more like when a client asks a real estate lawyer if he can build a fence, and the neighboring properties whose titles the lawyer has to examine before he can advise the client turn out to be owned by other clients.
Mokriski found a helpful distinction in EC 7-3 of New York's old Code of Professional Responsibility. “A lawyer may serve simultaneously as both advocate and adviser, but the two roles are essentially different. In asserting a position on behalf of the client, an advocate for the most part deals with past conduct and must take the facts as they are. By contrast, a lawyer serving as adviser primarily assists the client in determining the course of future conduct and relationships.”
Many in the audience, though, felt the hypothetical did involve direct adversity. There isn't a lot of law on this, Dinger pointed out. From the audience, William Freivogel of Chicago confirmed that there are only two cases he is aware of. Freivogel maintains a website that keeps track of court opinions on conflicts of interest. See http://www.freivogelonconflicts.com.
What is adversity that isn't direct, asked an audience member. Dinger cited the examples given in the comment to Model Rule 1.7: positional conflicts and general economic competition.
Positional conflicts: According to Comment , a lawyer ordinarily “may take inconsistent legal positions in different tribunals at different times on behalf of different clients.” But a positional conflict does create a conflict of interest if, for example, “a decision favoring one client will create a precedent likely to seriously weaken the position taken on behalf of the other client.”
General economic competition: According to Comment : “Simultaneous representation in unrelated matters of clients whose interests are only economically adverse, such as representation of competing economic enterprises in unrelated litigation, does not ordinarily constitute a conflict of interest and thus may not require consent of the respective clients.” Charles Wolfram, in a law review article included in the program materials, finds “unrelated” to be too purposely vague to be helpful, and further notes that “the notorious weasel word 'ordinarily’” is left unexplained. Charles W. Wolfram, Competitor and Other “Finite-Pie” Conflicts, 36 Hofstra L. Rev. 539, 541 (2007-2008).
William T. Barker of Chicago pointed out that the noninfringement letter would be a partial defense should Gadget ever sue Widget. Dinger, elaborating, explained the “generally accepted” proposition that if you have a letter of counsel you're protected from liability for willful infringement and the much higher damages it would entail.
In the real case, reported Dinger, the judge not only found direct adversity but refused to let the company in Widget's position use the noninfringement letter as a defense when it was sued for willful infringement by the company in Gadget's position. Only “competent advice of counsel” could qualify as a defense, the judge ruled, and part of competence is freedom from ethical violations. Widget's counsel's conflict of interest meant the noninfringement letter was useless, so the only remedy available to the company in Widget's position, the judge held, would be to sue for legal malpractice.
Attendees and panelists alike found the ruling especially troubling--“nutty,” actually--with respect to the remedy.
In Dinger's other hypothetical, taken from the facts of Enzo Biochem Inc. v. Applera Corp., 468 F. Supp.2d 359 (D. Conn. 2007), Gadget decides to sue Widget for infringement, whereupon Widget produces the noninfringement letter. Gadget's general counsel tells its “regular” outside counsel “we understand you can't represent us in filing a complaint against Widget,” the company for which your new lawyer wrote the noninfringement letter, and “we understand we have to hire a new lawyer” to do that for us, but as a matter of efficiency please give our new lawyer the benefit of your input and coordination so we don't end up overpaying. Please review his pleadings before he files them, for example.
Is this direct adversity, Dinger asked?
Kim D. Ringler, Newark, N.J., seemed to speak for many when she said “you're indirectly directly adverse.”
In fact the judge in the Enzo Biochem case, which Dinger used for his hypothetical, viewed the situation as a positional conflict. She ruled that Gadget's regular firm could have no role in coordinating with the specially retained counsel handling the Widget suit and could not review his pleadings, and she even enjoined Gadget's regular firm from participating in any future appeal.
So everything Gadget has invested in prosecuting its infringement actions goes down the drain? asked Mokriski.
Mark Harrison of Osborn Maledon, Phoenix, asked whose perspective do you look at this from? If Gadget's regular firm wouldn't be comfortable asking Widget for permission to help Gadget's lawyer out in Gadget's suit against Widget, it's a good sign that Gadget's regular firm shouldn't be helping him out.
What about adversity to a former client? Model Rule 1.9 does not prohibit a lawyer from undertaking a representation adverse to a former client unless the matters are substantially related. The hot spot in this part of the discussion: whether the substantial relationship test is a proxy for the likelihood confidential information will be involved, or whether it embodies some further element of loyalty.
The latter view, which Mokriski called the California school, maintains that subsequent adverse representation in a substantially related matter is a conflict of interest that violates a core value of the profession even if there is no protected information involved.
Fiduciary Duty and Chivalry
During the panel discussion, moderator J. Charles Mokriski read aloud from Henry Drinker's 1953 text Legal Ethics, where Drinker summarizes a New York County ethics opinion as follows:
“Where a client introduces a woman to him for legal advice and service, the fiduciary duty to her thus arising requires him, when she tells him of her intention to marry the introducer, to tell her of various sexual offenses on the introducer's part, his introduction waiving any duty of confidence. He should then retire from further employment by her.”
Drinker goes on to write that the ruling “seems to me to be sound,” endorsing what Mokriski called its “muscular invocation of waiver to reach a chivalrous result.”
An audience member proposed that once a representation is completed, the lawyer's duties to the former client are fully accounted for by the obligation to protect confidentiality and the prohibition on attacking the work done in the representation.
Panelist Pamela A. Bresnahan of Vorys, Sater, Seymour and Pease, Washington, D.C., noted that once the obligation of confidentiality to a former client is extended to playbook information, the duty of loyalty gets “spiked.” (Playbook information refers to the lawyer's general familiarity with how the client thinks, reacts, does business, etc.)
It is generally deemed prudent practice management to routinely send a termination letter at the conclusion of any representation. See “Look for Seven Guidelines Through Law Governing Former-Client Conflicts,” 18 Law. Man. Prof. Conduct 490.
But the termination letter itself may not be enough to protect the lawyer from a hot-potato accusation if the former client feels that it was dropped just so its lawyers could be free to undertake a new representation that would otherwise have been prohibited by the conflicts rules.
Bresnahan reported on a new case in which the plaintiff alleges that its longtime counsel on environmental matters “closed one file and went on to represent the state of Minnesota in an environmental matter against [it].” See 3M Co. v. Covington & Burling LLP, N.D. Minn., No. 0:12-CV-01800, filed July 24, 2012.
In a declining economy, Bresnahan noted, it's getting harder and harder to avoid representing potential adversaries or competitors. For example, she explained, a firm has been representing one beverage company for a long time, but business is slowing, and the firm wants to start representing other beverage companies. Its longtime client feels betrayed.
Ellen Pansky of Pansky Markle Ham, South Pasadena, Cal., brought up waivers. Is a recitation in the retainer agreement that “you understand we represent others in the same business” effective, she asked. Bresnahan said the answer depends upon whether the other representation involves a different subject matter, whether confidential information is involved, and how long the representation continues.
An audience member pointed out that 3M was using what some have called “Coca-Cola Outside Counsel Guidelines,” which include a declaration that the company will not be waiving anything. As Wolfram put it in his article included in the program materials, “For such a client, the client's lawyer is not to consort with the enemy, and certainly is not to represent the enemy.” Wolfram, supra, 36 Hofstra L. Rev. 539, 548.
“We represent competitors all the time,” Dinger said; our clients understand this and expect this. If economic competition qualified as a conflict of interest, he added, no lawyer would be safe representing more than one client in a particular industry.
Bresnahan pointed out that the antitrust bar has indeed become very segmented for just this reason, as a result of a sort of natural selection process that began in the 1930s. The intellectual property bar doesn't yet have enough history to have sorted itself out the way the antitrust bar has, she said, and the industries themselves haven't stratified enough yet.
Whether or not it's called part of the lawyer's fiduciary obligation, and whether or not it goes beyond the obligation of confidentiality, loyalty may be a fair word for the unarticulated factor in decisions condemning the subsequent representation.
The session concluded with a brief discussion of just how anomalous lawyers should consider the decision in Oasis W. Realty LLC v. Goldman, 250 P.3d 1115, 27 Law. Man. Prof. Conduct 315 (Cal. 2011), to be. Although the appellate court opinion noted that there was no allegation Goldman used any confidential information, the supreme court opinion reversing it proceeds from the premise that Goldman may have used confidential information, Mokriski explained. Pansky said she believes the appellate court “got it right,” and the case was properly thrown out as a SLAPP (strategic lawsuit against public participation). The problem was that the supreme court just “didn't like the way it smelled.”
An audience member agreed, suggesting further that if you look at the cases condemning the subsequent representation, there is usually a “whiff of surreptitious or clandestine activity” on the firm's part.
Copyright 2012, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
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