Hofstra Law Review Volume 23|Issue 4 Article 2 1995 When Lawyers Represent Their Adversaries: Conflicts of Interest Arising Out of the Lawyer- Lawyer Relationship Steven C. Krane Follow this and additional works at:http://scholarlycommons.law.hofstra.edu/hlr Part of theLaw Commons Recommended Citation Krane, Steven C. (1995) "When Lawyers Represent Their Adversaries: Conflicts of Interest Arising Out of the Lawyer-Lawyer Relationship,"Hofstra Law Review: Vol. 23: Iss. 4, Article 2. Available at:http://scholarlycommons.law.hofstra.edu/hlr/vol23/iss4/2 This document is brought to you for free and open access by Scholarly Commons at Hofstra Law. It has been accepted for inclusion in Hofstra Law Review by an authorized administrator of Scholarly Commons at Hofstra Law. For more information, please [email protected]. Krane: When Lawyers Represent Their Adversaries: Conflicts of Interest A WHEN LAWYERS REPRESENT THEIR ADVERSARIES: CONFLICTS OF INTEREST ARISING OUT OF THE LAWYER-LAWYER RELATIONSHIP Steven C. Krane" I. INTRODUCTION: THE PROBLEM All lawyers have heard the proverb: "He that is his own lawyer has a fool for a client." Regardless of how one may feel about the veracity of that maxim, it is beyond question that lawyers frequently encounter the need for legal services in their own right, and that they often retain other attorneys to provide those services instead of under- taking them themselves.2 This Article will address the principal ethi- cal issue-the risk of disqualification for conflict of interest-that may arise when a lawyer or law firm chooses to retain an attorney or law firm that happens to be representing a client in an unrelated matter whose interests are adverse to those of a client represented by the retaining lawyer or firm. There are several contexts in which lawyers may seek out other lawyers to represent them. As discussed below, resolution of the principal ethical issues engendered by the relationship is determined in large part by the factual context in which the relationship arises. * J.D. New York University, 1981; Parner, Proskauer Rose Goetz & Mendelsohn, New York, NY; Chair, Committee on Professional and Judicial Ethics of The Association of the Bar of the City of New York (1993-date); Chair, Special Committee to Review the Code of Professional Responsibility of the New York State Bar Association (1995-date); Member, Committee on Professional Ethics of the New York State Bar Association (1990-1994). The author wishes to thank Proskauer summer associate Bryan Pe-Folkes for his assistance in the preparation of this article. The views expressed in this article are solely those of the author. 1. THE QUOTABLE LAWYER § 25.3 (David S. Shrager & Elizabeth Frost eds., 1986) (quoting FACTS ON FILE DICTIONARY OF PROVERBS (Rosalind Fergusson ed., 1983)). 2. As former "First Brother" Billy Carter succinctly put it, "Sometimes even lawyers need lawyers." A DICTIONARY OF LEGAL QUOTATIONS § 88.13, at 103 (S. James & C. Stebbings eds., 1987). Published by Scholarly Commons at Hofstra Law, 1995 1 Hofstra Law Review, Vol. 23, Iss. 4 [1995], Art. 2 HOFSTRA LAW REVIEW [Vol. 23:791 Facile categorization, such as personal versus professional matters, does not provide a sufficient basis on which to analyze the situation. Greater differentiation is required to take into account the subtle distinctions and divergent implications between and among the follow- ing situations. A. Lawyers as People Lawyers often require the assistance of counsel in their personal affairs. Whether for convenience, or because of a lack of expertise or confidence in the ability to handle the matter pro se, lawyers regular- ly hire other lawyers to represent them in matters having nothing to do with the area in which they practice or with the "business" of practicing law. Thus, whether for the purchase or sale of a residence, for domestic relations matters, for estate planning matters, or for a variety of other reasons, lawyers often hire other lawyers to provide them with professional services in their individual, private capacities. B. Lawyers in Their Business Dealings Lawyers also routinely retain outside counsel to represent them in their business affairs. The practice of law has become a highly competitive business A lawyer is as much in need of the full range of legal services as any other businessperson. Issues of partnership taxation, real estate leasing, disputes with vendors, and employment litigation are just a few of the business-related matters on which a firm may seek legal guidance. Similarly, outside counsel is often employed to assist in intra-firm disputes, such as litigation arising out of the departure of partners and associated financial and client solici- tation issues While some large law firms may well be able to find 3. It has not always been so perceived, at least by the leaders of the profession itself. For example, Canon 12 of the ABA Canons of Ethics, originally adopted in 1908 and in effect until the adoption of the Code of Professional Responsibility in 1969, admonished lawyers that "the profession is a branch of the administration of justice and not a mere mon- ey-getting trade." ABA CANONS OF PROFESSIONAL ETHICS Canon 12 (1967). Any doubts concerning the lack of currency of this view were laid to rest by the United States Supreme Court in Goldfarb v. Virginia State Bar, 421 U.S. 773, 786 (1975), which held that "learned professions," including the practice of law, are engaged in "trade or commerce" within the meaning of the Sherman Act 4. See generally Steven C. Krane, Proceed With Caution: Mitigating Damaging Depar- tures after Denburg, N.Y. LJ., Nov. 29, 1993, at 1; Steven C. Krane, Ethical and Profes- sional Issues Associated With Departing Attorneys, in EMPLOYMENT LAW AND HUMAN RE- SOURCE ISSUES IN LAw FIRMS AND PROFESSIONAL PARTNERSHIPS (1993). http://scholarlycommons.law.hofstra.edu/hlr/vol23/iss4/2 2 Krane: When Lawyers Represent Their Adversaries: Conflicts of Interest A 1995] WHEN LAWYERS REPRESENT THEIR ADVERSARIES this expertise in-house, they also occasionally seek outside advice in complex financial or commercial matters or when other circumstances warrant. C. Lawyers in Need of Professional Guidance Lawyers also hire other lawyers when they confront professional quandaries such as client perjury or fraud and other confidentiality concerns, conflicts of interest, and attorney-client disputes.5 Whether in matters that may give rise to substantial financial exposure or otherwise, the outside counsel they select may be another lawyer in the field or a distinguished ethicist from whom a formal opinion is sought. D. Lawyers in Trouble Law firms ordinarily seek outside counsel in times of crisis, such as when charged with malpractice by clients or misconduct by regu- latory agencies.6 Correspondingly, when an individual lawyer is charged with a disciplinary violation (law firms as entities are not subject to professional discipline), the lawyer or the firm may well retain an expert in such matters either to appear as an advocate or to assist through counselling and guidance! Indeed, because most law- yers do not handle such matters on a regular basis, they are more inclined to retain outside counsel given that catastrophic sums of money, their invaluable reputation, or their very right to practice law may be at risk. E. Lawyers as Co-Counsel Lawyers also hire other lawyers to assist them in representing their own clients.8 A lawyer may seek to associate with a practitioner 5. See, e.g., Jonathan M. Epstein, The In-House Ethics Advisor: Practical Benefits for the Modern Law Firm, 7 GEo. J. LEGAL ETHIcS 1011, 1028-29 (1994). 6. Id.s;e e, e.g., Susan Beck & Michael Orey, They Got What They Deserved, THE AM. LAW., May 1992, at 68. 7. Cf. CHARLES W. WOLFRAM, MODERN LEGAL ETHICS § 3.4.1 (Practitioner's ed. 1986) (discussing right to counsel in attorney disciplinary proceedings); see also Epstein, supra note 5, at 1028-29. 8. See MODEL RULES OF PROFESSIONAL CONDUCT Rule 1.1, cmL 2 (1989) [hereinafter MODEL RULES] ("Competent representation can also be provided through the association of a lawyer of established competence in the field in question."); MODEL CODE OF PROFESSIONAL RESPONSIBILITY EC 6-3 (1986) [hereinafter MODEL CODE]; Avoiding Malpractice, Laws. Man. Published by Scholarly Commons at Hofstra Law, 1995 3 Hofstra Law Review, Vol. 23, Iss. 4 [1995], Art. 2 HOFSTRA LAW REVIEW [Vol. 23:791 who is more experienced in a particular field of law to counsel or assist the lawyer in specific matters. For example, a lawyer represent- ing a client in the purchase of a business may retain a trademark attorney to help evaluate the strength of the marks being purchased and an environmental lawyer to assess the target company's exposure with respect to certain of its industrial activities. Doing so is not only good practice, it is often required by fundamental principles of ethics governing lawyer competence.9 Of course, lawyers whose practice takes them out of their home state regularly retain local counsel to provide a variety of services, including advice on local practices and opinions on issues of state law. Indeed, retention of local counsel in litigated matters is frequently required by local court rule." It is im- portant to bear in mind that, in this context, the retained lawyer does not represent the lawyer, but rather the lawyer's client. Regardless of who retains the lawyer, or even who pays the bills, the lawyer owes his or her duty of loyalty to the ultimate client.1 F. Lawyers as Expert Witnesses Occasionally, the need arises for lawyers to serve as expert wit- nesses in judicial proceedings, such as in cases involving the reason- ableness of attorneys' fees, conflicts of interest, malpractice claims, or on Prof. Conduct (ABA/BNA) § 301:1007 (Feb. 15, 1995). This Article will refer throughout to provisions of both the Model Code of Profes- sional Responsibility ("Model Code"), as promulgated and amended by the American Bar Association ("ABA") between 1969 and 1983, and the Model Rules of Professional Conduct ("Model Rules"), as promulgated and amended by the ABA from 1983 to the present. Each state, except California, has adopted either the Model Code or the Model Rules, either intact or with amendments adopted by the appropriate attorney regulatory body within the state. While the majority of states have adopted the Model Rules, see STEP-EN GnIMi S & RoY D. SiMON, JR., REGtULATION OF LAWYERs, STATUTES AND STANDARDS xvi (1995), New York has preserved both the framework and, to a great extent, the substance of the Model Code. To the extent the New York Code differs materially from the Model Code, those differences are noted herein. While California has developed its own set of statutes and ethics rules to govern lawyer conduct, the principles governing conflicts of interest are substantially equiva- lent to those in the Model Rules and Model Code. 9. See MODEL RULES, supra note 8, Rule 1.1 cmt. 2; MODEL CODE, supra note 8, DR 6-101(A)(1) ("A lawyer shall not . . . [h]andle a legal matter which he knows or should know that he is not competent to handle, without associating with him a lawyer who is competent to handle it."). 10. See generally Pro Hac Vice, Laws. Man. on Prof. Conduct §§ 21:2105 to :2111 (May 22, 1991) (surveying state requirements for pro hac vice admission to state courts); WOLFRAM, supra note 7, at § 15.4.3. 11. See MODEL RULES, supra note 8, Rule 1.8(f); MODEL. CODE, supra note 8, DR 5- 107(B). http://scholarlycommons.law.hofstra.edu/hlr/vol23/iss4/2 4 Krane: When Lawyers Represent Their Adversaries: Conflicts of Interest A 1995] WHEW LAWYERS REPRESENT THEIR ADVERSARIES ethical issues.2 In malpractice cases, for example, the need for ex- pert testimony to establish the standard of care required of a reason- able lawyer is generally recognized.3 As in the co-counsel context, there should ordinarily be no attorney-client relationship, as such, between the expert witness, who is to opine on factual issues regard- ing the manner in which lawyers practice law, and the litigant (whether disgruntled client or accused lawyer) on whose behalf the lawyer is to testify.' Various ethical principles are implicated by the retention of law- yers in these factual contexts. For example, by virtue of the need to preserve the confidentiality of information provided by a client to a lawyer, it is generally impermissible to retain or consult with counsel in client-related matters without the client's consent. Additional complications may arise when the hiring lawyer intends to divide the 12. See Geiserman v. MacDonald, 893 F.2d 787 (5th Cir. 1990); Barth v. Reagan, 564 N.E.2d 1196 (Il1. 1990); Pongonis v. Saab, 486 N.E.2d 28 (Mass. 1985); Carlson v. Morton, 745 P.2d 1133 (Mont. 1987). See generally 2 RONALD E. MALLEN & JEFFREY M. SMITH, LEGAL MALPRAcrrCE, § 27.15, at 668 (3d ed. 1989); Michael P. Ambrosio & Denis F. McLaughlin, The Use of Expert Witnesses in Establishing Liability in Legal Malpractice Cas- es, 61 TEMP. LJ. 1351 (1988); Michael A. DiSabitino, Annotation, Admissibility and Necessi- ty of Expert Evidence as to Standards of Practice and Negligence in Malpractice Action Against Attorney, 14 A.L.R. 4th 170 (1982). 13. See, e.g., Geiserman, 893 F.2d at 787; Barth, 564 N.E.2d at 1196; Pongonis, 486 N.E.2d at 28; Carlson, 745 P.2d at 1133; Cleckner v. Dale, 719 S.W.2d 535 (Tenn. CL App. 1986). See generally MALLEN & SMITH, supra note 12, § 27.15, at 668; WoLFRAM, supra note 7, § 5.6, at 211. 14. Cf The State Bar of California, California Compendium on Professional Responsibil- ity, San Diego County Bar Ass'n Ethics Op. 1989-4 (1995) (analyzing attorney-expert witness conflict of interest on the basis of the economic interest in the continued relationship rather than the concurrent relationship of clients with materially differing interests). 15. 9]n the absence of consent of his client after full disclosure, a lawyer should not associate another lawyer in the handling of a matter, nor should he, in the absence of consent, seek counsel from another lawyer if there is a reasonable possibility that the identity of the client or his confidences or secrets would be revealed to such lawyer. MODEL CODE, supra note 8, EC 4-2; MODEL CODE, supra note 8, EC 6-3 ("A lawyer offered employment in a matter in which he is not and does not expect to become [compe- tent] should either decline the employment or, with the consent of his client, accept the employment and associate a lawyer who is competent in the matter." (emphasis added)). See generally MODEL RULES, supra note 8, Rule 1.6(a) ("A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out representation."). Cf Davis v. York Int'l Corp., No. 92-3545, 1993 U.S. Dist. LEXIS 7137 (D. Md. May 24, 1993) (holding that lawyer lecturing in continuing legal education course did not enter into attorney-client relationship with client of student in course who asked a question regarding a pending matter, as there was no offer or request by the client for legal services). Published by Scholarly Commons at Hofstra Law, 1995 5 Hofstra Law Review, Vol. 23, Iss. 4 [1995], Art. 2 HOFS7ZRA LAW REVIEW (Vol. 23:791 fee for the matter with the retained counsel.'6 These issues, though of great importance, are ordinarily resolved without significant analyti- cal difficulty. This Article will focus, instead, on a problem that may well give rise to analytical difficulties in certain contexts and that may, unlike associating with an "expert" or dividing a fee, often be perplexing. Consider the following hypothetical scenario: Louise Lawyer, a solo practitioner, represents plaintiff Modest Industries in a commer- cial contract litigation against Titanic Enterprises. Titanic is represent- ed in the litigation by Anthony Adversary, who is a member of Megafirm. Lawyer has just been charged by state disciplinary authori- ties with having mishandled funds she had been holding on behalf of a client (other than Modest Industries). While she insists that she has done nothing wrong and that the charge is groundless, Lawyer recog- nizes the seriousness of the disciplinary proceedings-the risk of disbarment, suspension or public censure-and seeks to engage, as her attorney, Edward Ethical, a highly respected lawyer in the community who has frequently handled professional responsibility issues raised in litigation. Lawyer's problem is that Ethical is a senior partner in Megafirm. The answer that has been given by the few authorities that have considered this situation, including ethics committees in New York, New Jersey, Michigan, Illinois, Pennsylvania, Maryland, Iowa, Ne- braska, and Kentucky, is that it creates a conflict of interest for both Lawyer and Megafirm, not so much because it would involve them in representing conflicting client interests in the conventional sense, but 16. Model Rule 1.5(e) permits lawyers to divide fees only if: (1) the division is in proportion to the services performed by each lawyer or, by written agreement with the client, each lawyer assumes joint responsibility for the representation; (2) the client is advised of and does not object to the participation of all the law- yers involved; and (3) the total fee is reasonable. MODEL RULES, supra note 8, Rule 1.5(e). New York's disciplinary rules are similar except that (i)th e client must affirmatively consent to the employment of the other lawyer after full disclosure that a division of fees will be made; and (ii) a "written agreement with the client" regarding the assumption of joint responsibility is not required-the lawyers need only give "a writing" to the client confirming that each assumes joint responsibility for the representa- tion. N.Y. JuD. LAW app. DR 2-107(A) (McKinney 1992). The Model Code does not permit a fee division unless: (i) the client consented after full disclosure; (ii) "the division [was] made in proportion to the services performed and [the] responsibility assumed by each"; and (iiith)e total fee did not "clearly exceed reasonable compensation for all legal services" provided to the client. MODEL CODE, supra note 8, DR 2-107 (A). http://scholarlycommons.law.hofstra.edu/hlr/vol23/iss4/2 6 Krane: When Lawyers Represent Their Adversaries: Conflicts of Interest A WHEN LAWYERS REPRESENT THEIR ADVERSARIES because of the risk that the business or personal interests arising out of the attorney-client relationship between them may somehow impact adversely upon their exercise of independent professional judgment on behalf of their respective clients." These authorities note, however, that the conflict may be cured by obtaining waivers from the affected clients-both of them-reflecting their consent to Lawyer's retention of Megafirm, after full disclosure to each of them of the potential and theoretical risks and disadvantages of the situation. But Lawyer cannot, as a practical matter, ask Modest for con- sent. She does not want any of her other clients to know that she has been accused of violating the rules governing the handling of client funds, an ignominious allegation she fully believes she will be able to refute. Must she therefore forego her choice of counsel in these criti- cal circumstances? Is this really the kind of conflict of interest the ethics rules had in mind? Moreover, does it make practical sense? Ethical barely knows Adversary, and he knows even less about Titan- ic Enterprises or the Modest lawsuit. Adversary and Ethical are in the same room with each other only once a year at the annual firm din- ner. Is it reasonable to conclude that Adversary is going to soft-pedal his representation of Titanic because Ethical is serving as Lawyer's counsel in the disciplinary proceeding and Megafirm is receiving a small fee from Lawyer? Is it reasonable to conclude that Lawyer is going to be less aggressive in her advocacy of Modest's rights be- cause of her newly established relationship with the law firm repre- senting Titanic? Is the only real issue whether Lawyer believes that her interests are best served by having Ethical represent her, notwith- standing the fact that Ethical's firm is duty bound to defeat her client's claim? These questions and others will be addressed in this Article. Indeed, there are virtually endless variations on the scenario set forth above. The problem can just as easily arise in a small town, where there only may be a handful of lawyers from which to choose-and all of them adversaries in one setting or another-or where the hiring lawyer is the "megafirm" which could potentially provide a significant income stream to the solo practitioner. It is the conclusion of this Article that the situation should not be governed by a blanket rule establishing a prerequisite of full dis- closure and client consent in all circumstances. Rather, a more flexi- ble approach must be taken that gives due consideration to the reali- 17. See infra part I.A. Published by Scholarly Commons at Hofstra Law, 1995 7 Hofstra Law Review, Vol. 23, Iss. 4 [1995], Art. 2 HOFSTRA LAW REVIEW [Vol. 23:791 ties of the particular circumstances involved. Factors to be weighed would be: (a) the intensity and duration of the relationship between the adversaries; (b) the intensity and duration of the adversaries' relationships with their respective clients; (c) the nature of the lawyer- lawyer representation; (d) the nature of the work currently being performed by the lawyers for their respective clients; (e) the relation- ship, if any, between the lawyer-lawyer representation and the repre- sentation of either client; and (f) the relative importance of the repre- sentations to the respective lawyers or firms. Unlike the bright-line test suggested by some authorities, this approach provides for an effective balance between the reasonable expectations of the clients and the legitimate interests of the lawyers. U. THE ANALYTICAL FRAMEWORK A. Ethical Paradigms In resolving any ethical quandary, just as in addressing any other legal problem, a critical step is identifying the issue. Authorities have differed as to the nature of the perceived conflict of interest when a lawyer hires an adversary to provide legal services, and generally choose one of two models. The first is the rule that precludes lawyers from representing a client whose interests conflict with, or differ from, those of another client of the lawyer."8 The second is the ad- monition not to represent a client if the lawyer's independent profes- sional judgment on behalf of the client will be affected by the lawyer's own personal or business interests.9 This Article postulates that only the latter rule is appropriately applied to the lawyer-adver- sary relationship. 1. Clients with Conflicting Interests Model Rule 1.7(a) generally prevents a lawyer from representing a client "if the representation of that client will be directly adverse to another client . . . ." Similarly, the Model Code provides, that a lawyer may not accept or continue employment by a client if the lawyer's "independent professional judgment in behalf of [another] 18. MODEL RULES, supra note 8, Rule 1.7(a); MODEL CODE, supra note 8, DR 5- 105(A), (B). 19. MODEL RULES, supra note 8, Rule 1.7(b); MODEL CODE, supra note 8, DR 5- 101(A). 20. MODEL RULES, supra note 8, Rule 1.7(a). http://scholarlycommons.law.hofstra.edu/hlr/vol23/iss4/2 8 Krane: When Lawyers Represent Their Adversaries: Conflicts of Interest A 1995] WHEY LAWYERS REPRESENT THEIR ADVERSARIES client will be or is likely to be adversely affected... or if it would be likely to involve [the lawyer] in representing differing interests," which are defined as including "every interest 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."2 Both provisions allow the affected lawyer to proceed with the repre- sentation, subject to certain limitations, if the consent of the affected clients is obtained.' Although it could be argued that the provisions of the Model Code and the Model Rules differ as to the degree of adversity re- quired to give rise to a disqualifying conflict of interest, there is no dispute that both apply only when one lawyer or firm has two or more clients whose interests differ or conflict. This does not mean that the lawyer must represent both clients in connection with the matter in which their interests differ; indeed, no one would suggest that Megafirn could represent both Modest Industries and Titanic Enterprises in the litigation between them, even with their consent' Rather, the rules prevent a lawyer from taking action on behalf of one client that is contrary to the interests of another client.' That the matters are unrelated is immaterial. Thus, Megafirm could not represent Titanic Enterprises in the Modest Industries suit if, for ex- ample, it regularly advised Modest on customs law issues, unless both 21. MODEL CODE, supra note 8, DR 5-105(A), (B). The Model Code also provides: The professional judgment of a lawyer should be exercised, within the bounds of the law, solely for the benefit of [the] client and free of compromising influences and loyalties. Neither [the lawyer's] personal interests, the interests of other clients, nor the desires of third persons should be permitted to dilute [the lawyer's] loyalty to [the] client. Id. EC 5-1. 22. See also REsTATEMENT grHtmD) OF THE LAW GOVERNNG LAWYERS § 201, (Ten- tative Draft No. 4, 1991) [hereinafter RESrATEmENT THnm]. Section 201 provides: Unless all affected clients consent to the representation under the limitations and conditions provided in § 202, a lawyer may not represent a client if the represen- tation would constitute a conflict of interest. A conflict of interest exists if there is a substantial risk that the lawyer's representation of the client would be materially and adversely affected by the lawyer's own interests or by the lawyer's duties to another current client, to a former client, or to a third person. Id. 23. See, e.g., Alayo I Carreras v. Cable w. Corp., 624 F. Supp. 1167 (D.P.R. 1986); Chateau de Ville Prod., Inc. v. Tams-Witmark Music Library, Inc., 474 F. Supp. 223 (S.D.N.Y. 1979); In re Blatt, 201 A.2d 715 (NJ. 1964); 'Wolfram, supra note 7, § 7.3.2. 24. MODEL RULES, supra note 8, Rule 1.7(a); MODEL CODE, supra note 8, DR 5- 105(A), (B). Published by Scholarly Commons at Hofstra Law, 1995 9