View Reports by Subject Area
View Reports by Committees
View Reports by Title
advance search by committee
THE ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK
FORMAL OPINION 2003-03
CHECKING FOR CONFLICTS OF INTEREST
Topic: Conflicts of Interest; Recordkeeping, Policies, and Systems for Conflicts-Checking Purposes
Digest: Under DR 5-105(e) of the New York Code of Professional Responsibility, all law firms must keep records and must have policies and systems in place to check for conflicts of interest to the extent necessary to render effective assistance to the lawyers in the firm in avoiding imputed conflicts under DR 5-105(d) based on current or prior engagements. What records the firm must keep, and what policies and systems the firm must implement, depends on a number of factors, including (a) the size of the firm, (b) where the firm practices, and (c) the nature of the firm’s practice.
Code: DR 5-105(d); DR 5-105(e)
What records must a law firm keep, and what policies and systems must a law firm implement for checking proposed engagements against current and previous engagements, to comply with New York’s mandatory conflict-checking rule, DR 5-105(e)?
On May 22, 1996, effective immediately, the Appellate Divisions adopted DR 5-105(e) of the New York Code of Professional Responsibility. In essence, the rule requires every New York law firm to keep records and implement policies and systems that effectively assist the firm in complying with New York’s imputed conflicts rule, DR 5-105(d), with respect to conflicts caused by the firm’s current and previous engagements.
DR 5-105(e) was drafted by the courts sua sponte. It was not based on any formal proposal by the Bar. It was adopted as part of the package of new and amended rules (also including DR 1-102 and DR 1-104) that made law firms as entities subject to discipline in New York. The requirements of the rule are not well defined or understood. The New York State Bar Association has not adopted any Ethical Considerations to explain DR 5-105(e); not a single court case has discussed the rule; and only one bar association ethics committee opinion has discussed DR 5-105(e) at any length—see N.Y. State Opinion No. 720 (1999), 1999 WL 692571. The rule is unique to New York—no other jurisdiction has adopted a rule anything like it—so other jurisdictions provide minimal guidance. At least one article has been written about the rule—see Roy Simon, Checking for Conflicts Under DR 5-105(e), New York Professional Responsibility Report, November 2002—but little formal guidance is available about the rule and its requirements. Accordingly, this Committee has been asked to render guidance to the Bar regarding the requirements imposed on law firms by DR 5-105(e).
The three sentences of DR 5-105(e) (which we quote verbatim below but break into separate paragraphs for greater clarity) provide as follows:
• “A law firm shall keep records of prior engagements, which records shall be made at or near the time of such engagements and shall have a policy implementing a system by which proposed engagements are checked against current and previous engagements, so as to render effective assistance to lawyers within the firm in complying with DR 5-105(d).”
• “Failure to keep records or to have a policy which complies with this subdivision, whether or not a violation of DR 5-105(d) occurs, shall be a violation by the firm.”
• “In cases in which a violation of this subdivision by the firm is a substantial factor in causing a violation of DR 5-105(d) by a lawyer, the firm, as well as the individual lawyer, shall also be responsible for the violation of DR 5-105(d).”
The text of DR 5-105(d), to which DR 5-105(e) refers four times, provides as follows:
“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) or (b), DR 5-108(a) or (b), or DR 9-101(b) except as otherwise provided therein. ”
This opinion will focus only on the first sentence of DR 5-105(e), with particular emphasis on the type and quality of records that a law firm must keep and the policies and systems the law firm must implement for checking proposed engagements against current and previous engagements.
What is a “law firm”?
Because DR 5-105(e) applies only to a “law firm,” we begin by briefly exploring the scope of the term “law firm.” The New York Code of Professional Responsibility (the “Code”) (at 22 N.Y.C.R.R. § 1200.01) defines the term “law firm” as follows:
“‘Law firm’” includes, but is not limited to, a professional legal corporation, a limited liability company or partnership engaged in the practice of law, the legal department of a corporation or other organization and a qualified legal assistance organization.”
This definition of course encompasses large law firms, corporate legal departments, governmental legal departments, and non-profit law firms. We also believe that a solo law practice, whether or not it is organized as a professional corporation or a limited liability company, is a “law firm” within the meaning of DR 5-105(e).
In addition, since the definition of “law firm” in the Code “is not limited to” traditional law firms and legal departments, the term has been applied for conflicts purposes to other practice arrangements. For example, as this Committee and other ethics committees have opined, lawyers in some practice arrangements must check for conflicts of interest as if they were a single law firm. See, e.g., ABCNY Opinion No. 80-63 (1980) (two firms that shared offices could not represent opposing parties in litigation because of the “strong likelihood” that the separate law firms could not maintain the confidences and secrets of their respective clients); N.Y. County Opinion No. 680 (1990), 1990 WL 677022, *2 (“Even though lawyers who share office space are not partners, they may be treated as if they were partners for some purposes under the Code (particularly the provisions for vicarious disqualification in the event of a conflict of interest)” if they share confidential information.) ABCNY Opinion No. 1995-8 (1995) (when law firms are “of counsel” to each other one-unit conflicts checking is required); ABCNY Formal Op. 1996-08, 1996 WL 416301, *3 (“‘of counsel’ relationships are treated as if the ‘counsel’ and the firm are one unit”).
We think DR 5-105(e) applies to these “constructive” law firms as well as to more traditional firms. In short, we believe DR 5-105(e) applies to a wide range of practice arrangements. We concentrate the remainder of this opinion on private law firms, but the principles and concepts discussed here apply in some fashion to other types of law firms as well, including the legal departments of corporations and government agencies.
Fundamentals of DR 5-105(e)
The essence of the first sentence of DR 5-105(e) is to require every law firm to do two things: (1) create a record of each new engagement at or near the time the engagement commences; and (2) have a policy implementing a system for checking proposed engagements against current and previous engagements. The rule does not specify what records a firm must keep, or what type of policy and system a firm must implement to check proposed engagements against current and previous engagements. Rather, the rule indicates simply that whatever systems are adopted should “render effective assistance to lawyers within the firm” in complying with their obligation to avoid conflicts that would violate DR 5-105(d).
At a minimum, to assist in complying with DR 5-105(d), we think that all firms should have mechanisms for assisting lawyers in identifying and resolving two types of conflicts arising from current or previous engagements that are expressly covered by DR 5-105(d):
• Conflicts among current clients, whether the conflicts arise before or during the engagement – see DR 5-105(a) and (b); and
• Conflicts with former clients, including the former clients of laterals and their former firms – see DR 5-108(a) and (b).
DR 5-105(d) also embraces conflicts that arise under DR 9-101(b) when a private law firm hires lawyers who formerly served as public officers or employees. However, because conflicts with former government lawyers are complicated by laws and rules governing grand jury secrecy, the secrecy of investigative information acquired by the government, governmental privileges, and other factors that make public officers and employees substantially different from private lawyers, this opinion does not address systems for checking the conflicts of former public officers and employees.
What kind of system is required to check for conflicts with current and former clients will turn on the nature of each law firm. In particular, the specific measures that DR 5-105(e) requires will depend on factors such as: (a) the size and structure of the firm; (b) the nature of the firm’s practice; (c) the number and location of the firm’s offices; (d) the relationship among the firm’s separate offices; and (e) other characteristics of the law firm and its operations. The records, policies, and systems will vary from law firm to law firm. But all law firms, whatever their particular characteristics—large or small, urban or rural, litigation or transactional, governmental or private—must keep certain minimum records and implement certain minimum policies and systems suitable to provide effective assistance to the firm’s lawyers in avoiding conflicts arising from current or former engagements and that will be imputed to the firm under DR 5-105(d).
The first sentence of DR 5-105(e) begins with a mandate for recordkeeping. It provides, in part, that a law firm “shall keep records of prior engagements … made at or near the time of such engagements….” The expressly stated purpose of this recordkeeping requirement is to assist lawyers in the firm in avoiding conflicts of interest that will be imputed to the entire firm under DR 5-105(d) (discussed above). The rule raises a number of questions, which we address one at a time.
1. What are “records”?
Types of Conflicts Not Addressed in This Opinion