BAR ASSOCIATION OF NASSAU COUNTY
COMMITTEE ON PROFESSIONAL ETHICS
Opinion No. 1996-16
(Inquiry No. )
Conflict of interest, propriety of attorney opposing client of law firm where attorney was previously employed in same or substantially related matters on behalf of same client.
An attorney may not represent a client against a former client in the same or “substantially related” matters absent informed consent by the attorney’s former client. An attorney who worked in a law firm is not automatically barred from undertaking representations adverse to clients of the former firm, unless the attorney worked on the same or substantially related matters for the client in the former firm or learned any of the client’s confidences or secrets that could be used to the client’s disadvantage in the present representation. Whether the current matter and former matters in which the attorney may have participated are “substantially related” depends upon the “totality of the circumstances,” including, “the factual and legal similarity of the former and present cases” involving the same client.
Inquiring Attorney was an associate in a nine-lawyer law firm (referred to as “Former Firm”) that represented various property insurers. The Former Firm’s practice is limited to investigating and defending suspicious first-party property claims (e.g. arson and suspicious theft losses). If the Former Firm recommends that a claim be denied and the claimant sues the insurer for coverage, the Former Firm defends that claim.
While Inquiring Attorney was employed at the Former Firm, a partner was handling a case pertaining to a claim for the sinking and loss of a boat for a particular insurer (referred to as “Insurer”). Inquiring Attorney states he did not report to that partner and was not involved in any manner with any of that partner’s cases, never worked on the “sinking boat case,” never discussed it with anyone else in the firm, and never saw any files pertaining to it. The only relationship between Inquiring Attorney and the “sinking boat case” is that he had been employed at the Former Firm while that firm was handling that case.
Inquiring Attorney also states, however, that while an associate with the Former Firm, the Inquiring Attorney handled other first-party property claims for the Insurer, based on suspicious losses of the insureds, but that each case is “factually distinct” with “no common factual issues between [such] matters.” The Inquiring Attorney also acknowledges that while at the Former Firm, he or she gained “expertise … in the area of first-party property,” but obtained “no specific knowledge” of the sinking boat case.
Later that same year, Inquiring Attorney left the Former Firm to become a sole practitioner. Then, several months later, Inquiring Attorney was asked by another attorney to represent the claimant against the Insurer in the “sinking boat case”. From an examination of the claimant’s file, the Inquiring Attorney ascertained that the Former Firm’s partner handling the matter had demanded claimant’s sworn statement in proof of loss and adjourned a scheduled examination under oath at the request of the claimant’s current attorney. Inquiring Attorney has been asked to take over the insured’s claim, help prepare the claimant’s sworn statement, prepare for and defend the claimant’s examination under oath and, if the claim is denied, litigate the claim for the insured claimant against the Insurer.
May an attorney who leaves a law firm represent a client who is adverse to a client of his former law firm in the same matter that was pending at the former firm while he was employed there, on which that attorney never worked, when he or she also worked on other cases of the same legal nature for the client, which are factually dissimilar from that case?
No, unless the Inquiring Attorney is fully satisfied, based on the totality of the facts and circumstances of this pending matter and other similar matters upon which the attorney worked while at the Former Firm (which are not described to us in the inquiry letter), that he or she gained no confidences or secrets of the client that could be used or revealed in the case to the former client’s disadvantage or for the current client’s advantage, and that there is no appearance or presumption of such knowledge based on the attorney’s work in other similar cases for the same client.
This inquiry raises serious and difficult questions about the scope of DR 5-108(A) of the New York Lawyer’s Code of Professional Responsibility and how that rule is applied to define “the same oi- substantially related” matters and the interpretation and application of DR 5-105(D) when an attorney moves to a new practice in which new clients of the attorney may be adverse to clients of the attorney’s former firm in “the same or substantially related” matters. The rule on conflicts of interest involving former clients, DR 5-108(A)(1), provides as follows:
DR 5-108 Conflict of Interest — Former Client
A. 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.
The issues therefore relevant to this ethical inquiry are:
(A) Whether the Inquiring Attorney is automatically and vicariously barred from a representation adverse to a client of a former law firm in the same matter, when he or she never personally participated in that matter while with the Former Firm?
(B) Whether the Inquiring Attorney participated in matters for the same client while at Former Firm which would bar him or her from undertaking a representation adverse to a client of the Former Firm in a matter “substantially related” to those prior matters?
(C) Assuming the answer to either of the above questions is affirmative, may the Inquiring Attorney undertake the new representation with the consent of the client of the Former Firm? and
(D) Did the Inquiring Attorney obtain or have access to confidences or secrets of the client of the Former Firm that could be used in the proposed new representation?
A. Did Inquiring Attorney represent the Former Firm’s client in the same matter?
DR 5-108(A)(1), quoted above, applies only when a lawyer has personally “represented the former client…” DR 5-108 does not refer to a lawyer or law firm that has represented the former client.
We do not understand the vicarious or imputed disqualification provision of DR 5-105(D) to bar automatically any lawyer who has left a law firm’s employ from ever representing a new client materially adverse to a client of the former firm. This is confirmed by the introductory phrase of that rule which reads as follows:
While lawyers are associated in a law firm, none of them share 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. [Emphasis added.]
N.Y. State Op. 638 (1992) confirms this interpretation. The New York State Bar Ethics Committee opined:
We believe that the drafters of the New York Code intended to limit the operation of DR 5-108(A) to instances in which Lawyer either personally represented the former client or acquired confidences or secrets…. [Emphasis added.]
We are informed that Inquiring Attorney did not personally represent the former client, the Insurer, in the sinking boat case. However, Inquiring Attorney states he or she represented Insurer in other matters “factually distinct” from the sinking boat case but generally similar in being first-party property claims involving suspicious losses.
B. Is this the same or a “substantially related” matter?
Since Inquiring Attorney represented Insurer while at the Former Firm, then he may not “represent another person in the same or a substantially related matter” in which the new client’s interests are materially adverse to the interests of the former client, the Insurer. The next question, therefore, is whether the sinking boat case is “substantially related” to matters on which Inquiring Attorney personally represented Insurer while at the Former Firm
The term “substantially related” is not defined in the New York Lawyer’s Code of Professional Responsibility. However, state and federal courts in New York and elsewhere have frequently applied that term in particular factual circumstances. See generally Charles W. Wolfram Modern Legal Ethics, § 7.4.3, at 368-71 (1986).
This is an area of professional ethics in which the courts have issued many rulings addressed to particular facts and circumstances. Professor Roy Simon has noted in a handbook on professional ethics under the New York Code:
Once it is determined that an adverse party is a former client, the next major inquiry is to determine whether the present matter is “substantially related” to any matter handled for the former client. Several tests have been tried out over the years, and no one test is universal. The most common test is whether the facts of the prior representation are relevant to the facts of the current representation, but some courts also demand an identity of legal issues.
Simon’s New York Code of Professional Responsibility Annotated, 1995-1996
at 215 (1995).
This committee and other bar association ethics committees in New York have also applied the term “substantially related,” by comparing two cases (the current and prior cases) to determine their “substantial relationship” with each other. Unfortunately, the term has no specific and generally accepted definition and its application depends on many factors.
This Committee previously concluded as follows in our Opinion No. 93-37 (1993):
[T]he applicability of DR 5-108 in any particular case may turn on, inter alia. . . the nature and degree of contact by the particular attorney with the client while at the [former] firm; the factual and legal similarity of the former and present cases; … the degree of responsibility of the particular attorney for the matter in question at present, the amount of time which has elapsed since the prior representation; and other factors, not all of which are before this Committee, and as to which this Committee therefore does not opine, but which must be evaluated by the attorney. As observed by the Appellate Division in Lopez v. Precision Papers, Inc, 99 A.D.2d 507, 470 N.Y.S.2d 678 (2d Dept. 1984)], a decision regarding the applicability of DR 5-108 to any particular factual context must be made upon “the totality of circumstances.” [Emphasis added.]
Because this Committee does not know the “totality of the circumstances” or “the factual and legal similarity of the former and present cases,” we cannot determine whether the sinking boat case is “substantially related” to any matters that the Inquiring Attorney may have handled on behalf of Insurer while employed by the Former Firm Inquiring Attorney must therefore make his or her own determination, based on the kinds of factors addressed in Nassau Bar Op. No. 93-37 and the relevant case law.
C. If the sinking boat case is substantially related to matters on which Inquiring Attorney formerly represented Insurance Company, has Inquiring Attorney obtained consent after full disclosure?
If the sinking boat case is “the same or substantially related” to matters on which Inquiring Attorney formerly represented Insurance Company, DR 5-108 nevertheless permits Inquiring Attorney to oppose the Insurer if he has obtained its consent “after fall disclosure.” State and federal courts and bar association ethics committees in New York have frequently discussed the meaning of the term “full disclosure.” We need not review those opinions here.
D. Inquiring Attorney may not use any confidences or secrets of the former client unless permitted by DR 4-101 or generally known.
To fill out the scenario we are discussing, suppose if while at the Former Firm Inquiring Attorney represented Insurer on matters that were not “the same or substantially related” to the sinking boat case, but nevertheless learned certain confidences and secrets of Insurer that might be useful in the sinking boat case in which he now opposes Insurance Company, or might be useful for other purposes. For example, an insurer may engage in lawful methods of surreptitious surveillance of the insureds, a fact not generally known to third parties. Under DR 5-108(A)(2), Inquiring Attorney may not use any of those confidences or secrets for any purpose, whether for his own advantage or for the advantage of his new client or for the advantage of any other client, unless one of the exceptions under DR 4-101 applies or the confidences and secrets have become “generally known.”
Because we have no information whether Inquiring Attorney learned any confidences or secrets of Insurer while at Former Firm or, if he did, how they could be used now, we cannot determine whether any of the exceptions to DR 4-101 would permit such use. Once again, the New York state and federal courts have applied a rebuttable presumption that if a lawyer worked in a law firm in which he had access to a client’s confidences or secrets either because of the collegial nature of the firm or by reason of access to centralized or computerized files available to all lawyers in the firm, that might in itself bar the lawyer from appearing in the future in a matter adverse to a client of a prior law firm which is substantially related to the former firm’s previous matters for that client.
For example, in Severino v. Dilorio, 186 A.D.2d 178, 587 N.Y.S.2d 766 (2d Dept. 1992), plaintiffs sued a hospital for medical malpractice and six months later a partner of the hospital’s law firm moved to the firm representing plaintiffs. The hospital moved to disqualify plaintiffs’ law firm as a whole. Under DR 5-108, the court granted the disqualification motion, even though the new partner of plaintiffs’ firm had not worked in this same malpractice case in either the old or new firms but had worked on a case involving “remarkably similar” injuries. The court relied on the fact the lawyer had previously defended the hospital in many malpractice cases, had extensively participated in all aspects of such cases, and had access to the prior firm’s case files while he worked there. Compare Solow v. W.R. Grace & Co., 83 N.Y.2d 303, 610 N.Y.S.2d 128, 632 N.E.2d 437 (1994) (denying disqualification where lawyers who worked on matter for client similar to matter in which the firm was now adverse to client had left the firm), with Tekni-Plex, Inc. v. Meyner and Landis, No. 185, N.Y.L.I.J, Oct. 23, 1996, at 26-27 (N.Y. Ct. Appeals, Oct. 22, 1996) (granting disqualification of law firm from representing sole shareholder in dispute with merged corporation concerning seller’s representations of environmental matters in which law firm had represented acquired corporation), and Cardinale v. Golinello, 4.3 N.Y.2d 288, 295-96, 401 N.Y.S.2d 191, 372 N.E.2 26 (1977) (granting disqualification of lawyer who had once worked for prior firm in same or related matter where facts indicated collegial nature of’ that prior firm).
Most recently, in Tekni-Plex, supra, the Court of Appeals directly construed DR 5- 108(A) to give rise to “an irrebuttable presumption of disqualification” if (1) there is a prior attorney-client relationship between the moving party and opposing counsel, (2) the matters involved are “substantially related,” and (3) the interests of the present and former clients are materially adverse. The court recognized that this presumption is a “prophylactic measure” intended to protect possible attorney-client confidences gained in the prior relationship, but also cautioned, however, against “mechanical application of blanket rules” in applying these three criteria. In actually applying the second test of “substantial relationship” as between the old corporation’s prior environmental compliance matters and the present dispute in arbitration, the court held that the law firm’s “current representation of [the individual who sold the corporation] creates the potential for the law firm to use these confidences against” the new merged corporation in the arbitration.
As to whether “confidences or secrets” protected by DR 4-101 have become “generally known,” this committee recently issued an opinion narrowly construing that phrase. See Nassau Bar Op. 96-7 (1996). We said in that opinion that even if certain confidences and secrets are matters of public record, that does not necessarily make them “generally known” within the meaning of DR 5-108(A)(2).
While employed at the Former Firm, Inquiring Attorney did not personally represent Insurer in the sinking boat case. However, we cannot determine whether Inquiring Attorney represented Insurer in any matters that are “substantially related” to the sinking boat case. Whether the prior matters are substantially related to the sinking boat case depends on the “totality of the circumstances” and “the factual and legal similarity” of the present and former cases in which the Inquiring Attorney may have participated for the same client. Inquiring Attorney will have to make that determination for himself.
If Inquiring Attorney represented Insurer on substantially related matters while at the Former Firm, then he may not represent his new client in the sinking boat case unless he obtains the Insurer’s consent after “full disclosure.” Even if permitted to represent the new client against the Insurer in the sinking boat case, Inquiring Attorney may not use any confidences or secrets of the Insurer unless such use is consented to by the former client or is otherwise permitted by DR 4-101 or the confidences and secrets have become “generally known.”
(Approved by Executive Committee on 10/15/96; Approved by Full Committee on 10/30/96)