BAR ASSOCIATION OF NASSAU COUNTY

COMMITTEE ON PROFESSIONAL ETHICS

 

OPINION NO. 2006-04

 

 

TOPIC: 

 

            Multiple client representation, preservation of client loyalties, avoiding conflicts of interest, exercising independent professional judgment.

 

DIGEST: 

 

            An attorney who represents multiple clients on related matters cannot enter into a confidentiality agreement on behalf of one client where the agreement gives such client an advantage in the discovery portion of its litigation since the terms of the agreement are not available to the other clients on their related matters.

 

CODE PROVISIONS:        

            DR 1-101

            DR 2-108(B)

            CANON 5

            DR 5-105(A)

            DR 5-105(B)

            DR 5-105(C)

 

FACTS: 

 

            Law Firm “A” represents six clients in similar but separate arbitrations against a New York securities brokerage firm.  Each client claims financial injury as a result of allegedly systemic fraudulent practices by the Atlanta office of the brokerage firm.  The cases were not consolidated and will be heard by separate arbitration panels in various

 

class=WordSection2>

states.

            The first case brought is in New York.  Inquiring counsel, Firm A, has been advised by Firm B, which is defending the arbitration, that as a condition of discovery, Firm A must sign, on behalf of its client, a “Confidentiality Agreement” which states, inter alia:

 

The Confidential Documents shall not be used by [client] or his counsel except in connection with this arbitration, and shall not be used for any other purpose.  Confidential Documents and their contents shall not be disclosed to any persons or entity other than as provided in Paragraph 4 of this Agreement.

 

Paragraph 4 limits disclosure of the Confidential Documents to Claimant’s counsel, counsel’s employees, experts and consultants, the arbitrators and the arbitration reporter.

 

QUESTIONS PRESENTED/DETERMINATION:        

 

                1.          Can Law Firm A enter into an agreement which restricts its right to use documents produced in discovery for one of its clients, by a common adverse party that other of its clients may subsequently require without violating the duties it owes to those other clients? No.

                2.          Is it improper for Firm B to demand that Firm A sign the broad Confidentiality Agreement?  The Committee declines to answer this question as it does not affect the future conduct of the inquiring attorney.

 

DISCUSSION: 

 

            For the purpose of discussion, it is presumed that the “Confidential Documents” referenced in the Agreement includes copies of the documents used in arbitration, and that the term “used” is to be interpreted broadly and therefore prohibits any subsequent use by the claimant or counsel.

 

            Of the two questions presented, we will address the second question first: Is it improper for Firm B to demand that Firm A sign the broad confidentiality agreement?

 

            As to this question, it is the uniform practice of this Committee to limit its responses to questions concerning the prospective conduct of the inquiring lawyer, not of any other lawyer.  Accordingly, we decline to answer this part of the inquiry.

 

            However, we note that the only Disciplinary Rule (“DR”) that could be of import is DR 2-108(B) [22 NYCRR Part 1200.13], which states; “In connection with the settlement of a controversy or suit, a lawyer shall not enter into an agreement that restricts the right of a lawyer to practice law.”  However, the plain language of the Rule clearly indicates that it is intended to apply only to agreements connected to “settlement” of a “controversy”.  In the instant query, the contemplated agreement is limited to the discovery stage of the proceeding, and cannot reasonably be construed as settling the controversy.  Accordingly, this Rule does not apply to, and therefore cannot prohibit, the agreement being proposed by Firm B See generally, Simon’s New York Code of Professional Responsibility Annotated, 2005 Ed. at pp.352-353.

           

            The first question, can Firm A sign such an agreement without violating the duties it owes to other clients is more difficult, as it deals with the broad concept of duties owed to other clients with related cases who would benefit directly from the information obtained by Firm A through disclosure.

 

            Differing Interests

 

            Firm A owes a duty of undivided loyalty to each of the clients it represents, even where the clients are being represented on separate matters.  Canon 5 informs generally: “A lawyer should exercise independent professional judgment on behalf of a client.”

 

DR 5-105(A) provides:

 

A lawyer shall decline proffered employment if the exercise of independent professional judgment in behalf of a client will be or is likely to involve the lawyer in representing differing interests, except to the extent permitted under DR 5-105(C).”

 

            DR 1-101 defines “differing interests” as:

 

“...every interest of a client that will adversely affect either the judgment or the loyalty of a lawyer to a client, whether it be a conflicting, inconsistent, diverse, or other interest.”

 

            DR 5-105(C) qualifies subdivisions “A” and “B” by permitting multiple representations where:

 

...a disinterested lawyer would believe that the lawyer can competently represent the interests of each and if each consents to the representation after full disclosure of the implications of the simultaneous representation and the advantages and risks involved.”  (Emphasis added.)

 

            With the above DRs as guidance, can Firm A agree not to use the information gained in representing client #1 for the benefit of similarly situated clients with potentially differing interests, without running afoul of Canon 5 and DR 5-105(A)?

 

            Multiple Clients

 

            In situations involving multiple clients, the analysis is whether or not the interests of the multiple clients differ or are likely to differ in the future.  The first determination, and perhaps the most significant based upon the facts presented herein, is whether the interests of the clients are actually divergent.

 

            We must assume that without the agreement in question the lawyers in Firm A would be capable of eventually obtaining all pertinent disclosure, therefore eliminating from discussion the questions of more effective and more complete discovery.  Thus, the assumed benefit/interest to the first client in entering into the agreement is a quicker and less costly discovery process.  In other words, the first client is not getting any greater end result from Firm A; they are only getting it quicker and less expensively.

 

            What then is the effect on the other clients of Firm A with claims against the same defendant?  They still will obtain the discovery they are entitled to, albeit perhaps at greater effort and expense.  These other clients are not actually losing anything, as the benefit to the first client does not result in any prejudice directed at these other clients.  What they are actually losing is a fortuitous advantage that their lawyer might otherwise be able to extend to them, as a direct result of his representing the first client.

 

            In sum, if the inquiring lawyer were able to obtain the discovery in the first case without the confidentiality agreement, there would be an overflow benefit to the other clients.  Yet, without this fortuitous occurrence, the other clients are in exactly the same situation as if they all hired separate counsel.  Does the loss of a fortuitous benefit to these other clients create a “conflict” between the first client and the other clients?

 

            While the Code makes reference to “conflicts of interest” and most lawyers generically refer to all Canon 5 issues as conflicts issues, the term is misleading.  Canon 5 more accurately is concerned with a lawyer’s independence and his loyalty to his client.  Further, the standard of whether a “conflict” exists is whether the interests of the clients are “differing”.  As defined by the Code, a differing interest ranges from “conflicting” downward to “inconsistent” or “diverse”.

 

            To return to the question presented, what are Firm A’s duties to its other similarly situated clients? Firm A cannot represent multiple clients whose interests are inconsistent.  In the instant matter, it would appear to be in the best interests of all of the clients to engage in expedited discovery.  For Firm A to intentionally contract for expedited discovery for the client which happens to be the first into arbitration puts it in a position that is inconsistent and divergent from the interests of all other clients similarly situated.  Thus, if they continued to represent all six clients after entering into the confidentiality agreement, Law Firm A would be representing clients with “differing interests” and would be in violation of DR 5-105(B).  This opinion does not take a position as to whether or not this is a consentable conflict that could be cured via disclosure and consent of all other clients, as there are insufficient facts upon which to do so, subject to the caution respecting confidentiality set forth below.  The Committee questions, however, whether all of the Firm’s clients can knowingly waive the conflict where the terms of the disclosure agreement preclude any ability to ascertain the content of the information that the remaining clients would be forfeiting use of.    

 

(Approved by the Full Committee on September 13, 2006)

 

 


Log In