Ethics Opinions

 
NASSAU COUNTY BAR ASSOCIATION
COMMITTEE ON PROFESSIONAL ETHICS
Archive of Ethics Opinions
Opinion No.: 1995-16
Topics: Propriety of inquiring law firm ("Law Firm Two") representing a client where the client is engaged in ii legal malpractice action against another law firm ("Law Firm One"), and a partner in Law Firm Two ("Attorney A") was a partner in Law Firm One at ....
Digest: ....the time the legal malpractice action was commenced.

Whether a law firm may represent a client is a factual determination dependent upon whether the client has consented to the representation after full disclosure of any potential conflict of interest and the likely effect of the conflict on the law firm's independent professional judgment.
Code Provisions: Canon 7
DR 4-101(B)
DR 5-101(A)
DR 5-105(D)
DR 5-108(A)
EC 5-1
EC 5-21
Facts Presented: The trustees of a labor-management administered pension fund and the trustees of a labor-management administered welfare fund wish to retain Law Firm Two (herein after "LF2").

 

Some years ago, the pension and welfare funds were represented by Law Firm One (hereinafter "LF1"). During the course of this representation, the pension fund acquired commercial real estate pursuant to the advice of LF1. Following the termination of their relationship, the pension fund sued former trustees and a current trustee in connection with the real estate transaction alleging a breach of fiduciary duty as well as fraud on the part of the trustees. The former trustees commenced a third party action against LF1 for alleged malpractice, which has been dismissed. In addition, the current trustee instituted a legal malpractice action against LF1, and a motion to dismiss is currently pending. Finally, the pension fund commenced an action directly against LF1 alleging malpractice, which is currently pending.

 

Attorney A, who was a partner in LF1 at the time the litigation was commenced, has since joined LF2 as a partner.

 

LP2 has made full disclosure to the pension fund about Attorney A's former relationship with LF1. LF2 proposes a retainer agreement which explicitly states that it will not represent the pension fund in the malpractice litigation against retainer agreement which explicitly states that it will not represent the pension fund in the malpractice litigation against LF1, nor in any litigation arising out of the same subject matter as the malpractice litigation.
Inquiry: May inquiring law firm represent a client that has sued another law firm for legal malpractice if a present partner in inquiring law firm was a partner in the defendant law firm at the time the alleged malpractice occurred, provided the inquiring law firm explicitly agrees in its retainer that it will not handle the legal malpractice litigation or any related litigation, and provided the client gives its consent after full disclosure of any potential conflict of interest?
Determination: Yes, the inquiring law firm may represent client in the unrelated matters proposed, subject to stated qualifications.
Analysis: Initially, it should be noted that the welfare fund is a separate and distinct legal entity from the pension fund, and according to the facts provided, is not a party to the legal malpractice suit against LF1. Therefore, the Code of Professional Responsibility poses no obstacle to LF2's representation of the welfare fund. The remainder of this opinion addresses only the proposed representation of the Pension Fund.

 

Canon 7 of the New York Code of Professional Responsibility provides that an attorney has a duty to zealously represent a client within the limits of the law. As provided in EC 5-1, zealous representation requires that the attorney exercise independent judgment unhindered by considerations outside the scope of the duty to a client.

DR 5-101(A) provides:

 

Except with the consent of the client after full disclosure, a lawyer shall not accept employment if the exercise of professional judgment on behalf of the client will be or reasonably may be affected by the lawyer's own financial, business, property, or personal interests.

In addition, DR 5-108(A) provides:

 

Except with the consent of a former client after full disclosure a lawyer who has represented the former client in a matter shall not:

(1)

Thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client.

(2)

Use any confidences or secrets of the former client except as permitted by DR 4-101 (C) or when the confidence or secret has become generally known.

Finally, DR 5-105(D) provides:

D.

While lawyers are associated in a law firm, none of them shall knowingly accept or continue employment when any one of them practicing alone would be prohibited from doing so under DR 5-101(A), DR 5-105(A), (B), or (C), DR 5-108, or DR 9-101(B) except as otherwise provided therein.

Under DR 5-105 (D), if DR 5-101 (A) or DR 5-108 would prohibit Attorney A practicing alone from representing the pension fund in the situation at issue, then no attorney at LF2 may do so.

A. Analysis Under DR 5-108

Alleged conflicts of interest require courts to balance the "competing interests between the right of a client to be represented by the counsel of his/her choice and the fact that an unconditioned choice may put a challenging party at an unfair disadvantage, either because the lawyer has previously been privy to certain confidences disclosed by the challenging party, or because the lawyer will necessarily be called as a witness by either side." Lighting Park v. Wise Lerman & Katz, P C., 197 A.D.2d 52, 54, 609 N.Y.S.2d 904 (1994). In that case, the Appellate Division reversed the disqualification of counsel, balancing the competing interests by employing the so--called "substantial relationship" test:

 

Absent a substantial relationship between the prior litigation and the present case, disqualification would be warranted only upon a showing that in the prior action Herman had received specific confidential information substantially related to the present litigation.

Lighting Park, 197 A.D.2d at 55. See also Solow v. W.R. Grace & Company, 83 N.Y.2d 303, 610 N.Y.S.2d 128 (1994); T.C. Theatre Corp. v. Warner Bros. Pictures, Inc., 113 F. Supp. 26!5 (S.D.N.Y. 1953). All of the cited cases involve former attorney-client relationships and their bearing on disqualification where the former client claims to be placed at a disadvantage as a result of the former representation. The decisions center upon whether information acquired during the prior representation would result in an unfair disadvantage to the former client in the present representation, and thus require disqualification. The test in all of the cases is a "substantial relationship" test.

The stated facts indicate that LF2's representation of the pension fund bears no relation to the pending malpractice action. Under the "substantial relationship" test, therefore, LF2 would not be precluded from representing the Pension Fund. In any case, the situation raised by the inquiring law firm does not fall under DR 5-108(A) because LF1 is not opposing a former client. LF1 is Attorney A's former law firm, not his former client. Moreover, LF2 is not involved in the malpractice litigation brought against LF1.

 

Nevertheless, a conflict of interest analysis is required under DR 5-101(A).

B. Analysis Under DR 5-101(A).

 

DR 5-101(A) is relevant because Attorney A was a partner in LF1 at the time the pension fund's legal malpractice fiction against LF1 was commenced. Therefore, Attorney A may have fiduciary duties to maintain the confidences of his former partners. Moreover, if the amount of any judgment or settlement against LF1 exceeds the amount of legal malpractice insurance and partnership assets available to cover the judgment, then Attorney A may be personally liable for part of the judgment.

 

Attorney A's status as a former partner of LF1 thus raises two possible concerns under DR 5-101(A). One concern is that Attorney A will be unable to zealously represent the pension fund because doing so would require him to breach his fiduciary duties to his former partners. The other concern is that Attorney A's possible personal liability in the malpractice suit against LF1 will cause him to assist LF1 in its defense of the malpractice suit by revealing confidences and secrets of the pension fund to his former partners at LF1, or otherwise to sabotage the pension fund's malpractice action against LF1. We conclude that both of these concerns are insufficient to disqualify LF2 from representing the pension fund in unrelated matters if the pension fund gives its consent after full disclosure.

1. Attorney A's Fiduciary Duties to His Former Partners.

 

In Greene v. Greene, 47 N.Y.2d 447, 418 N.Y.S.2d 379 (1979), the Court of Appeals cited DR 5-101(A) in disqualifying a law firm from representing a client against a law firm where two partners in the disqualified firm had formerly been partners in the law firm that was being sued for a breach of fiduciary duty, fraud and other wrongs involved in the creation of a trust. The Court of Appeals reasoned: "It would be egregious to permit an attorney to act on behalf of the client in an action where the attorney has a direct interest in the subject matter of the suit." Greene, 47 N.Y.2d at 452.

 

In Greene, the Court of Appeals suggested that the attorneys owed a fiduciary obligation to their former firm. This duty was likened to that of the fiduciary duty of an attorney not to reveal the confidences of a former client. Greene, 47 N.Y.2d at 453. The Court of Appeals therefore held that the obligation of the attorneys to their former firm created an obvious and irreconcilable conflict of interest. The plaintiff's law firm had to choose between zealously representing its present client by breaching the fiduciary duty to the former firm, and failing to zealously represent the present client by fulfilling the fiduciary duty to the former firm.

 

The facts in the present scenario differ from Greene in a crucial respect: unlike the attorneys in Greene, the attorneys at LF2 will not be involved in any action against LF1. Thus, LF2 may zealously represent the pension fund in unrelated matters without any need to breach any fiduciary duties to Attorney A's former firm, LF1. However, this contrast by itself does not negate all potential conflicts. We must also ask whether Attorney A's fiduciary duty to his former partners at LF1, and Attorney A's possible personal liability for a malpractice judgment against LF1, preclude LP2 from representing the pension fund in any matter.

 

Assuming that Attorney A learned confidences of LF1 while he worked there, his loyalty to his present firm's client (the pension fund) might tempt Attorney A to reveal LF1's confidences to the pension fund to help it in its malpractice suit against LF1. This would be a problem under Greene if Attorney A still has fiduciary duties to maintain the confidences of his former partners at LF1. However, unlike in Greene, LF2's zealous representation of the pension fund would not require Attorney A to reveal any of LF1's confidences to the pension fund, because LF2's representation of the pension fund is unrelated to the malpractice claim against LF1. Therefore, any possible breach of fiduciary duties is merely speculative. In any event, the fiduciary duties to former partners do not raise issues of confidentiality under the Code of Professional Responsibility. Rather, fiduciary duties are controlled by partnership law, which is beyond this Committee's jurisdiction.

2. Attorney A's Financial Interests.

 

A potential conflict of interest also arises under DR 5- 101(A), however, because of the exposure of Attorney ik's assets to the potential liability in the pending malpractice lawsuit. Because Attorney A was a partner in LF1 at the time the alleged malpractice took place, he may be personally liable for any judgment in excess of LF1's legal malpractice insurance coverage and partnership assets. DR 5-101(A) explicitly requires the informed consent of a client where an attorney's independent professional judgment on behalf of the client will be or reasonably may be affected by the attorney's financial interests. We must therefore ask whether Attorney A's financial interests as a former partner of LPI "will" or "reasonably may" adversely affect his independent professional judgment on behalf of the pension fund in the present unrelated representation. If so, LF2 cannot undertake the representation of the pension furid unless the pension fund gives its informed consent after full disclosure of the possible adverse effect. Even then, as indicated by the case law above, the informed consent of the client doc-s not automatically overcome certain "egregious" conflicts.

 

In the present inquiry, LP2 has clearly disclosed, in writing, Attorney A's former association with LP1 and has clearly delineated the parameters of its proposed representation. The pension fund has the ability to consult with additional counsel (especially its counsel in the legal malpractice case against LF1) and to employ other measures to insure that it will make an informed decision in determining whether to retain LF2. Ultimately, whether to retain LF2 is the client's decision and therefore, if the pension fund retains LF2 for representation, this choice should remain undisturbed. In this situation, the pension fund is in the best position to maintain control over its chosen counsel.

 

To accept the retainer, the inquiring law firm must believe that the effectiveness of its representation will not be impaired by the desires of Attorney A. The exposure of Attorney A's personal assets in the malpractice action depends on the adequacy or insufficiency of LF1's applicable malpractice insurance and other partnership assets of LF1, and LF2 must consider this in assessing its capability to represent the pension fund free from the subtle influences of Attorney A's relationship with LF1 and the exposure of his personal assets in the malpractice action against LF1.

 

Of course, whether or not LF2 agrees to represent the pension fund, Attorney A and the other lawyers at LF2 are prohibited from revealing any confidences and secrets of the pension fund to LF1, or to use the pension fund's confidences for the benefit of LF1, or to use them to the disadvantage of the pension fund or for the advantage of the attorneys at LF1 or any other third person. DR 4-101(B).

 

Under the circumstances described herein and limited to the facts stated, we believe that LF2 may ethically accept the retainer by the pension fund provided LF2 obtains the consent of the Pension Fund after full disclosure and the inquiring law firm reasonably believes that the effectiveness of its representation of the pension fund will not be impaired by Attorney A's status as a former partner of LF1.

 

[Approved by the Executive Subcommittee on 10/3/95; Approved by the Full Committee on 11/29/95]
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