THE ASSOCIATION OF THE BAR OF THE CITY OF NEW
YORK
COMMITTEE ON PROFESSIONAL AND JUDICIAL ETHICS
FORMAL OPINION 2006-2
APRIL 2006
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TOPIC: Duties to Prospective Clients; Beauty Contests;
Advance Conflict Waivers; Imputation of Conflicts; Screens.
DIGEST: A lawyer who participates in a “beauty
contest” with a prospective client, but who ultimately is not retained
by the prospective client, is not personally prohibited from later representing
a client with materially adverse interests in a substantially related
matter if the lawyer did not learn confidences or secrets of the prospective
client during the beauty contest. If the lawyer learned confidences or
secrets of the prospective client, the lawyer may nonetheless later represent
a client with materially adverse interests in a substantially related
matter: (a) if, before the beauty contest, the lawyer obtained the prospective
client’s advance waiver of any conflict that might result from
the prospective client sharing confidences or secrets; (b) without an
advance waiver, unless the confidences or secrets could be significantly
harmful to the prospective client; or (c) if it can be established that
the prospective client revealed confidences or secrets with no intention
of retaining the lawyer, but for the purpose of disqualifying the lawyer’s
firm from later representing possibly adverse parties.
Moreover, even if the individual lawyer described above is personally
prohibited from later representing a client with materially adverse interests
in a substantially related matter, the presumption that other lawyers
at the law firm have knowledge of the prospective client’s confidences
or secrets may be rebutted, under the circumstances discussed below,
by using ethical screens.
CODE: DR 4-101; DR 5-108; EC 4-1.
Question
May a law firm that participated in a beauty contest with a prospective
client, but that ultimately was not retained by the prospective client,
thereafter represent a client in a matter substantially related to the
subject of the beauty contest, when the client’s interests are
materially adverse to the prospective client’s interests?
Opinion
A. The Beauty Contest Scenarios
Consider the following situation. Company A (the “Prospective
Client”) is interested in suing Company B for breach of contract.
In an effort to choose litigation counsel, the Prospective Client conducts
a beauty contest involving several law firms, including Firm X. Assume
the following two possible scenarios for the beauty contest:
Scenario 1: Firm X presents its qualifications to represent the Prospective
Client, and the Prospective Client does not divulge any confidences or
secrets regarding its proposed lawsuit. 1
Scenario 2: Firm X presents its qualifications to represent the Prospective
Client, and the Prospective Client divulges confidences and secrets regarding
the underlying facts and legal theories supporting its proposed lawsuit.
Further assume that the Prospective Client ultimately decides not to
retain Firm X to represent it in the lawsuit, and that Company B thereafter
seeks to retain Firm X to defend it in the lawsuit. 2
This opinion analyzes the ethical considerations applicable to law firms
participating in beauty contests. The analysis applies equally to when
a law firm holds a preliminary meeting with a prospective client that
is not approaching other law firms for possible retention.
B. Attorney-Client Relationship
In today’s legal environment, where individuals and corporations
often conduct extensive searches for legal representation, a law firm
must be mindful that participating in a beauty contest may, as discussed
below, enmesh the firm in a disabling conflict of interest that would
require it to decline to represent a client with materially adverse interests
in a substantially related matter, or risk a court granting the prospective
client’s motion for disqualification. A law firm participating
in a beauty contest would be mistaken to believe that a court would nonetheless
allow it to represent such a client because the beauty contest failed
to result in the formation of an actual attorney-client relationship
with the prospective client, evidenced by the signing of a retention
agreement, by the rendering of services, or by the receipt of payment.
Indeed, the formation of an actual attorney-client relationship is not
a prerequisite to the disqualification of a firm that participated in
a beauty contest.
The critical issues determining whether, following an unsuccessful beauty
contest, a firm will be allowed to represent the client described above
are whether the attorneys who participated in the beauty contest on behalf
of the firm had access to confidences or secrets of the prospective client
that could be significantly harmful to the prospective client and, if
so, whether the firm (1) had obtained an adequate advance waiver from
the prospective client before the beauty contest, or (2) established
and acted in accordance with adequate procedures to rebut the presumption
that those confidences or secrets were or will be shared with other attorneys
in the firm.
C. The Individual Attorney
Whether Firm X, in the situation described above, is prohibited from
representing Company B because one of its attorneys participated in the
beauty contest with the Prospective Client involves two inquiries. The
first is whether the attorney who participated in the beauty contest
is personally disqualified from representing Company B.3
The Code of Professional Responsibility (the “Code”) does
not contain any provision directly informing this inquiry, or, more generally,
addressing the duties that a lawyer owes to a prospective client. But
certain Code provisions are nonetheless relevant. DR 4-101 provides that “[a]
lawyer should preserve the confidences and secrets of a client.” DR
5-108 imposes the same duty on a lawyer regarding the confidences and
secrets of a former client. And Ethical Consideration 4-1 states that
the obligation to preserve confidences and secrets is not limited to
current or former clients, but also includes prospective clients: “[b]oth
the fiduciary relationship existing between lawyer and client and the
proper function of the legal system require the preservation by the lawyer
of confidences and secrets of one who has employed or sought to employ
the lawyer.” (emphasis added).
At the same time, it is important to recognize that a prospective client
does not stand on entirely equal footing with a client. A lawyer’s
discussions with a prospective client are necessarily limited in both
duration and detail, a lawyer must be able to obtain — without
undue risk of disqualification — the information necessary to determine
whether the representation is appropriate, and the lawyer or the prospective
client or both may decide not to proceed any further. As the Restatement
(Third) of The Law Governing Lawyers(2000) (the “Restatement”)
cogently observed in explaining why the prospective client should receive
some, but not all, the protections given to a client:
[A] lawyer’s discussions with a prospective client often are limited
in time and depth of exploration, do not reflect full consideration of
the prospective client’s problems, and leave both prospective client
and lawyer free (and sometimes required) to proceed no further. Hence,
prospective clients should receive some but not all of the protection
afforded clients.
Id. § 15 cmt. b.
We believe that the ABA Model Rules of Professional Conduct and the Restatement struck
the appropriate balance in defining the duties owed to prospective clients.
Under both Model Rule 1.18(b) and Restatement § 15(1)(a),
a lawyer shall neither disclose nor make adverse use of confidential
information learned from a prospective client. At the same time, in addressing
whether a lawyer who participates in a beauty contest with a prospective
client should later be personally disqualified from representing a client
with materially adverse interests in a substantially related matter,
Model Rule 1.18 provides that “[a] lawyer … shall not represent
a client with interests materially adverse to those of a prospective
client in the same or a substantially related matter if the lawyer received
information from the prospective client that could be significantly harmful
to that person in the matter….” Similarly, Section 15(2)
of the Restatement, entitled “A Lawyer’s Duties
to a Prospective Client,” provides that “[a] lawyer … may
not represent a client whose interests are materially adverse to those
of a former prospective client in the same or a substantially related
matter when the lawyer … has received from the prospective client
confidential information that could be significantly harmful to the prospective
client in the matter….”4
The “significantly harmful” test sets the bar lower than
in the case of a lawyer opposing a former client. Under Model Rule 1.9(a)
and under Restatement § 132, as under DR 5-108(A),
the bar against a lawyer acting adversely to a former client in a substantially
related matter is automatic.5
Applying these principles to the scenarios described above, the attorney
from Firm X who participated in the beauty contest should not be personally
prohibited from representing Company B in Scenario 1 because that attorney
did not receive any confidences or secrets from the Prospective Client
during the beauty contest. See, e.g., Interpetrol Berm., Ltd. v.
Rosenwasser, 1988 U.S. Dist. LEXIS 14307, at *7 (S.D.N.Y. Dec. 19,
1988) (in a pre-retention situation, the failure to proffer evidence
that the attorney had access to confidences and secrets “is necessarily
fatal to the disqualification motion”); N.Y. Univ. v. Simon,
498 N.Y.S.2d 659, 662 (Civ. Ct. N.Y. County 1985) (denying motion to
disqualify “based on what is, in essence, movant’s conclusion
that the matters discussed were significant” without any showing
that confidences and secrets were revealed).
But in Scenario 2, in which confidences or secrets of the Prospective
Client are shared with the attorney, the attorney would be prohibited
from representing Company B, except in the following three situations.
First, the attorney from Firm X should be allowed to represent Company
B unless the confidences or secrets the attorney had received from the
Prospective Client could be significantly harmful to the Prospective
Client in the litigation.
Second, the attorney from Firm X should be allowed to represent Company
B if, before the beauty contest, the attorney obtained the Prospective
Client’s informed advance waiver of any conflict that might otherwise
result from the Prospective Client sharing confidences or secrets with
the attorney during the beauty contest. In order to maximize the likelihood
of such a waiver being effective, a lawyer should consider having the
waiver (1) in writing, (2) signed by the prospective client, (3) explain
the preliminary nature of the beauty contest, (4) request that the prospective
client not reveal any confidences or secrets during the beauty contest,
and (5) state that, if the prospective client nonetheless divulges confidences
or secrets, and the attorney is not retained by the prospective client,
the prospective client waives any objection to (a) the attorney’s
later retention by a client whose interests may be materially adverse
to the prospective client’s interests, and (b) the attorney’s
use of the confidences and secrets in that representation. See, e.g.,
Bridge Prods. Inc. v. Quantum Chem. Corp., 1990 U.S. Dist. LEXIS
5019, at *10-11 (N.D. Ill. Apr. 27, 1990) (placing the burden on the
attorney to make clear that “the initial meeting was purely preliminary
and that confidences would not necessarily be protected”).6
Third, the attorney from Firm X should be allowed to represent Company
B if it can be established that the Prospective Client revealed confidences
or secrets without any intention of retaining Firm X, but for the purpose
of disqualifying Firm X from any later representation of possibly adverse
parties.7 In this case, the attorney
from Firm X should not be prevented from representing Company B because
the reasonable expectation of confidentiality underlying DR 5-108(A)
and DR 4-101 is absent, given that the Prospective Client’s purpose
in meeting the attorney as part of the beauty contest was merely to preclude
the attorney from representing Company B, as opposed to selecting counsel.
Model Rule 1.18 supports this conclusion. Under that Rule, a prospective
client is “[a] person who discusses with a lawyer the possibility
of forming a client-lawyer relationship.” Having had no intention
of retaining the attorney from Firm X when conducting the beauty contest,
the Prospective Client would not qualify as a true prospective client. See
alsoRestatement § 15(1) (defining prospective client
as “a person [who] discusses with a lawyer the possibility of their
forming a client-lawyer relationship for a matter”).
That the attorney from Firm X should not be disqualified from representing
Company B when the Prospective Client uses the beauty contest as a “sword” is
also supported by the Committee on Standards of Attorney Conduct of the
New York State Bar Association (the “NYSBA Committee on Standards
of Attorney Conduct”). Indeed, the NYSBA Committee on Standards
of Attorney Conduct recently proposed Rule 1.18, entitled “Duties
to Prospective Client,” which is nearly identical to Model Rule
1.18, but which explicitly withholds the confidentiality protections
of the rule from one who uses the beauty contest as an offensive tool. See Proposed
New York Rule of Professional Conduct 1.18 ( Sept. 30, 2005) (“Proposed
Rule 1.18”). As the drafters of Proposed Rule 1.18 make clear in
Comment 2, “a person who communicates with a lawyer for the sole
purpose of preventing the lawyer from handling a materially adverse representation
on the same or a substantially related matter is not entitled to the
protection of this Rule.”
D. The Law Firm
Even if the individual attorney from Firm X, who participated in the
beauty contest with the Prospective Client, is prohibited from representing
Company B in a substantially related matter, Firm X may still be able
to represent Company B in that matter. Generally, a conflict which prohibits
an individual attorney from representing a client will be imputed to
other attorneys working at the law firm, creating a presumption of disqualification
of every attorney at the firm. Thus, DR 5-105(D) provides that “[w]hile
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….” Similarly, Model Rule 1.18 provides
that “[i]f a lawyer is disqualified from representation … no
lawyer in a firm with which that lawyer is associated may knowingly undertake
or continue representation in such a matter….”8
But the presumption that the other attorneys at the law firm have knowledge
of the disabling confidences or secrets can be rebutted under certain
circumstances. See, e.g. Kassis v. Teacher’s Ins. and Annuity
Ass’n 695 N.Y.S.2d 515, 518 (1999) (stating that an “imputed
disqualification is not an irrebuttable presumption. A per se rule of
disqualification … is unnecessarily preclusive because it disqualifies
all members of a law firm indiscriminately, whether or not they share
knowledge of the former client’s confidences and secrets. […]
[B]ecause disqualification of a law firm during litigation may have significant
adverse consequences to the client and others, it is particularly important
that the Code of Professional Responsibility not be mechanically applied.”)
(internal citations and quotation marks omitted); U.S. Football League
v. Nat’l Football League, 605 F. Supp. 1448, 1466 (S.D.N.Y.
1985) (“The presumption of shared confidences is, however, rebuttable…”).
We believe that, in this context, ethical screens are an appropriate
means to rebut the presumption of shared confidences or secrets. To be
sure, the Code specifically endorses the use of screens only in cases
involving government attorneys and judges, see DR 9-101, but
the Code’s failure to mention screens to rebut the presumption
of shared confidences or secrets in the context of prospective clients
is not dispositive. After all, as stated earlier, the Code does not address
duties to prospective clients. In addition, the courts have found screens
to be effective in the context of prospective clients. See, e.g., Cummin
v. Cummin, 695 N.Y.S.2d 346 (App. Div. 1999); Interpetrol Berm.,
Ltd. v. Rosenwasser, 1988 U.S. Dist. LEXIS 14307 (S.D.N.Y. Dec.
19, 1988). The courts have also endorsed the efficacy of screens to rebut
the presumption that confidences or secrets were or will be shared within
the firm in other settings, see, e.g., Battagliola v. Nat’l
Life Ins. Co., 2005 U.S. Dist. LEXIS 650 (S.D.N.Y. Jan. 19, 2005); In
re Del-Val Fin. Corp. Sec. Litig., 158 F.R.D. 270 (S.D.N.Y. 1994); Papyrus
Tech. Corp. v. N.Y. Stock Exch, Inc.., 325 F. Supp. 2d 270 (S.D.N.Y.
2004); Solow v. W.R. Grace, 610 N.Y.S.2d 128 (1994); Armstrong
v. McAlpin, 625 F.2d 433, 453 (2d. Cir. 1980) (en banc) (Newman,
J., dissenting) (“I do not see why a Chinese Wall should be thought
more impervious to information that originated from a government investigation
than to information learned from a client with adverse interests”), vacated,
449 U.S. 1106 (1981).
This result is supported by the relevant sections of the Model Rules
and of the Restatement, with which we also otherwise agree.
Model Rule 1.18 explicitly recognizes the use of screens to rebut the
imputation of the conflict of interest in the case of a prospective client:
(d) [w]hen the lawyer has received disqualifying information … representation
is permissible if:
* * *
(2) the lawyer who received the information took reasonable measures
to avoid exposure to more disqualifying information than was reasonably
necessary to determine whether to represent the prospective client; and
(i) the disqualified lawyer is timely screened from any participation
in the matter and is apportioned no part of the fee therefrom; and
(ii) written notice is promptly given to the prospective client.9
Moreover, the NYSBA Committee on Standards of Attorney Conduct, in its
Proposed Rule 1.18, explicitly recognizes the efficacy of screens. See Proposed
Rule 1.18 (d) (stating that the firm may still represent the client if
the lawyer who received the disqualifying information took reasonable
measures to avoid exposure to more disqualifying information than was
reasonably necessary to determine whether to represent the prospective
client and the disqualified lawyer “is timely screened from any
participation in the matter….”).
E. The Effective Screen
In assessing whether a law firm has effectively screened a personally
prohibited lawyer from the rest of the firm, thus enabling the firm to
represent a client with materially adverse interests to the prospective
client in a substantially related matter, courts evaluate a number of
factors:
First, consideration is given to the timeliness of the firm’s
implementation of the screen. See In re Del-Val Fin. Corp. Sec. Litig.,
158 F.R.D. 270, 274 (S.D.N.Y. 1994) (approving the use of screen to rebut
the presumption that confidences were shared with other attorneys at
the firm when firm instituted screen “as soon as [it] did discover
the conflict”, despite the fact that the conflict had arisen two
months earlier); Papyrus Tech. Corp. v. N.Y. Stock Exch., Inc.,
325 F. Supp. 2d 270, 281 (S.D.N.Y. 2004) (presumption rebutted when firm “immediately
established appropriate screening mechanisms” after it “received
actual notice that … confidences or secrets may have been disclosed….”); Mitchell
v. Metro. Life Ins. Co., 2002 U.S. Dist. LEXIS 4675, at *29 (S.D.N.Y.
Mar. 20, 2002) (presumption not rebutted when firm implemented screen
almost two months after conflict arose and “well after the time
the firm had actual notice of the conflict”).
Second, a screen’s efficacy may depend on the size of the firm,
as courts can be skeptical of a screen’s adequacy in small firms. See
In re Del-Val Fin. Corp. Sec. Litig., 158 F.R.D. at 274 (screen
approved for firm of over 400 attorneys); Papyrus Tech. Corp.,
325 F. Supp. 2d at 280 n.10 (affirming use of screen in firm of 50 attorneys
while stating that “there exists no per se rule that a small-firm
(to the extent that … a fifty-member patent firm qualifies as
small) cannot erect an effective screen.”); Decora Inc. v.
DW Wallcovering Inc., 899 F. Supp. 132 (S.D.N.Y. 1995) (not allowing
screen in firm of 44 attorneys); Yaretsky v. Blum, 1981 U.S.
Dist. LEXIS 12624, at *15 (S.D.N.Y. Apr. 15, 1981) (not allowing screen
in firm of less than 30 attorneys); Crudele v. N.Y. City Police Dep’t,
2001 U.S. Dist. LEXIS 13779, at *13-14 (S.D.N.Y. Sept. 6, 2001) (declining
to approve screen at 15-member law firm).
Third, courts consider whether the personally prohibited lawyer works
in proximity to the lawyers at the firm who will represent the client. SeeBattagliola
v. Nat’l Life Ins. Co., 2005 U.S. Dist. LEXIS 650, at *46
(S.D.N.Y. Jan. 19, 2005) (screen allowed when personally prohibited lawyer
worked at a different office (New Jersey) than the attorneys handling
the client’s matter (New York)); Decora Inc., 899 F. Supp.
at 140 (not allowing screen when personally prohibited lawyer worked
in same department as other attorneys representing client); Yaretsky,
1981 U.S. Dist. LEXIS 12624, at *15 (disallowing screen when personally
prohibited lawyer worked in firm’s health law section, which was
also the section of the firm charged with handling case for client).
Fourth, courts accord weight to affidavits submitted by (1) the personally
prohibited lawyer stating that the lawyer has not shared the confidences
or secrets with others at the firm, and (2) the other lawyers at the
firm confirming that they have not received those confidences or secrets. In
re Del-Val Fin. Corp. Sec. Litig., 158 F.R.D. at 274; Papyrus
Tech. Corp., 325 F. Supp. 2d at 281.
Fifth, the effectiveness of a screen may be lessened if the personally
prohibited lawyer works on other matters with the lawyers representing
the client. Decora Inc., 899 F. Supp. at 140; Mitchell,
2002 U.S. Dist. LEXIS 4675, at *28.
Last, the effectiveness of a screen may be questioned if the personally
prohibited lawyer maintains files containing the confidences or secrets. SeeIn
re Del-Val Fin. Corp. Sec. Litig., 158 F.R.D. at 274.
Conclusion
To best position itself so as not to be precluded from representing
a client with materially adverse interests in a matter substantially
related to the subject of a beauty contest, a law firm should consider
developing protocols for participating in these and similar preliminary
meetings with prospective clients. Those protocols might include:
1. establishing a process whereby the risk of having any lawyer at the
firm tainted is minimized, e.g.:
a. by discussing with the prospective client the disqualification issues
presented by participating in the meeting;
b. by seeking an advance waiver from the prospective client; and
c. by not obtaining confidences or secrets from the prospective client
during the meeting.
2. having a written formal screening process in place that will effectively
and immediately seal off the firm’s personally prohibited lawyer
(assuming a taint exists) from the other lawyers at the firm.
1 “Confidences” and “secrets” are
defined in DR 4-101. As used in this Opinion, these terms encompass confidential
information divulged by the prospective client even though no actual
attorney-client relationship has yet been formed.
2 This opinion assumes that the
Prospective Client does not consent to Company B’s retention of
Firm X.
3 The second issue—whether
the firm itself is disqualified—is discussed below in Section D.
4 See also ABCNY Formal
Op. 2001-1 (adopting the “significantly harmful” test in
the context of a law firm’s receipt of an unsolicited e-mail containing
confidential information)
5 Seealso 1 Geoffrey
C. Hazard and W. William Hodes, The Law of Lawyering (3d ed. 2005), § 21A.6,
at 21A-15. (“Because the relationship between a prospective client
and a lawyer by definition never reaches the stage where the duty of
loyalty attaches with full force, however, Rule 1.18 imposes a less stringent
regime on the lawyer than where actual clients and former clients are
involved. Put another way, the protections afforded to prospective clients
are not as extensive as those provided to ‘real’ clients.”)
6 For a discussion of the requirements
for an effective advance waiver, see ABCNY Formal Op. 2006-1.
7 Revealing confidences and secrets
in a preliminary meeting for the purpose of disqualifying the law firm
is known as “taint shopping.” See, e.g., Geoffrey
C. Hazard, Ethics, The Would-Be Client, Nat’l L.J., Jan.
15, 1996 at A19 (“taint shopping describes the behavior in which
someone purporting to be seeking legal assistance interviews a lawyer
or law firm for the purpose of disqualifying them from future adverse
representation.”)
8 Courts have also recognized the
imputation of the conflict, see, e.g.,Battagliola v. Nat’l
Life Ins. Co., 2005 U.S. Dist. LEXIS 650, at *43 (S.D.N.Y. Jan.
19, 2005); Papyrus Tech. Corp. v. N.Y. Stock Exch., Inc., 325
F. Supp. 2d 270, 277-278 (S.D.N.Y. 2004), and have stated that “[t]he
imputation rule is based upon the belief that when attorney-client confidences
are disclosed to a member of the law firm, every other attorney in the
law firm has the opportunity to ascertain the information gleaned from
the disclosure.” Lott v. Morgan Stanley Dean Witter & Co.
Long Term Disability Plan, 2004 U.S. Dist. LEXIS 25682, at *13 (S.D.N.Y.
Dec. 23, 2004).
9 Similarly, the Restatement in
this context allows the firm to represent a client adversely to the former
prospective client, if “(i) any personally prohibited lawyer takes
reasonable steps to avoid exposure to confidential information other
than information appropriate to determine whether to represent the prospective
client, and (ii) such lawyer is screened as stated in § 124(2)(b)
and (c).” Restatement at § 15(2)(a)(i).
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