Summary: It would violate DR 5-105 if Law Firm undertook to represent long-term Client B directly against the interests of current Client A even though it withdrew from its representation of Client A in unrelated, but ongoing litigation, when that withdrawal is over Client A's objection. Various arguments against that interpretation of the rules are considered and rejected. The committee is not prepared to advise in this opinion about the permissibility of advance consent clauses that would permit such simultaneous representation.
Facts: For several years, Law Firm represented Client A in a matter before a state administrative agency. At the same time, it represented Client B in a non-competing portion of the same general area of business with respect to a variety of policy and regulatory matters. While still representing Client A, Law Firm made inquiry on behalf of Client B about proposed state action in favor of entity C that had an adverse impact on Client B. That inquiry yielded the information that C was being operated by A'. A and A' are both wholly-owned subsidiaries of the A Group. Law Firm then wrote to the state on behalf of Client B, expressing concerns about the proposed state action.
Shortly thereafter, there were conversations between Law Firm and representatives of the A Group about the Law Firm's representation of Client A while it was representing, in an unrelated matter, another client whose interests were directly adverse to those of A'. Law Firm first informed A Group counsel that if it were necessary to withdraw from any matter, Law Firm would withdraw from representing Client A because of its long-time relationship with Client B. A Group replied that given its representation of Client A, Law Firm should withdraw from representing Client B with respect to the proposed state action. Law Firm thereupon concluded to withdraw from both matters and proceeded to do so.
The proposed state action has numerous ramifications for Law Firm's long-time Client B, and Law Firm would like to resume its representation of Client B in connection with all ramifications of the proposed state action. We are informed that Law Firm has no confidential information from Client A that has any bearing on the proposed state action and that the matters are entirely unrelated. Law Firm believes that the conditions for undertaking representation against a former client have been met and that it is therefore appropriate for Law Firm to undertake the representation of Client B with respect to the proposed state action.
Discussion: The inquirer assumes that for purposes of this analysis the two wholly-owned subsidiaries of the A Group and the A Group itself should be treated as one unit. There are conceivably some situations where an argument to the contrary might be made in a case involving a far-flung company with subsidiaries in different businesses. On the bare facts given us, this does not seem to be such a case, and so we follow the basic McCourt principle that a parent and subsidiary should be treated as one for conflict of interest purposes. McCourt Company v. FPC Properties. Inc., 386 Mass. 145 (1982).
We believe that the issue presented to us involves application of the simultaneous representation, not the successive representation, standard. When the proposed state action surfaced, Law Firm had already been representing Client A for over 18 months. It may be that Client B was also a current client of Law Firm by reason of a constant series of representations for ten years. In any event, Law Firm undertook to act for Client B with respect to the proposed state action while it was representing Client A. Once the name of A' surfaced and once Law Firm ascertained that Client B wished to act in a matter likely to be directly adverse to the position of Group A, Law Firm was in the position of representing, and being adverse to, a client at the same time. That is the paradigm case for application of DR 5-105.
DR 5-105 provides:
(A) A lawyer shall decline proffered employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve him in representing differing interests, except to the extent permitted under DR 5-105(C).
(B) A lawyer shall not continue multiple employment if the exercise of his independent professional judgment in behalf of a client will or is likely to be adversely affected by his representation of another client, or if it would be likely to involve him in representing differing interests, except to the extent permitted under DR 5-105(C).
(C) In the situations covered by DR 5-105(A) and (B), a lawyer may represent multiple clients if it is obvious that he can adequately represent the interest of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each.
If Client B was not a current client of Law Firm when it sought representation, undertaking representation of Client B against the A Group would violate DR 5-105(A). If Client B was a current client, the representation of Client B would violate DR 5-105(B). Law Firm argues that there is no actual conflict when concurrent representation is on unrelated matters. Concurrent representation for and against a client, even on unrelated matters, constitutes an actual conflict. Justice Wilkins' opinion in McCourt is explicit on the point and is in line with many other holdings to the same effect. While the situation does not raise a problem of abuse of confidences, it does raise a different issue. As Justice Wilkins stated,
The undivided loyalty that a lawyer owes to his clients forbids him, without the clients' consent, from acting for client A in one action and at the same time against client A in another. If there are any special circumstances in which an exception to this general rule should be recognized, no such circumstances have been demonstrated here, and we are aware of no case in which such an exception has been recognized and applied. 386 Mass. at 145.
DR 5-105(C) does permit multiple representation in cases to which DR 5-105(A) and (B) apply provided that two conditions are met -- consent of the parties and the conclusion that it is "obvious" that the lawyer can "adequately represent the interest of each." We need not address the "obviousness" test because there is no consent of the parties to the multiple representation.
Law Firm suggests that the withdrawal from representation of Client A negates the application of the simultaneous representation rules of DR 5-105 and triggers the more relaxed successive representation rules. We have previously relied on Unified Sewerage Authority v. Jelco. Inc.. 646 F.2d 1339, 1345 n.4 (9th Cir. 1981), in advising that the "settlement of just a piece of litigation should not eliminate the applicability of the multiple representation rules any more than withdrawal from representation of one of two clients in the middle of a case eliminates their applicability." MBA Opinion 84-4 (emphasis added). The Jelco rule has been generally accepted. See Strategem Dev. Corp. v. Heron International, 756 F. Supp. 789 (S.D.N.Y. 1991) (citing other cases) and Wolfram, Modern Legal Ethics 359 (1986). Otherwise a lawyer could always turn a simultaneous representation case into a successive representation case.
Law Firm further suggests that Masiello v. Perini Corp., 394 Mass. 842, 844-46 (1985) is authority for the proposition that the rules relating to successive representation and not simultaneous representation are applicable to the present inquiry. We do not agree. In Masiello, a lawyer representing some contractors in connection with a federal and two state court matters involving a dispute over the MBTA's Red Line extension agreed to handle Perini's identical interests as well. The two state court actions were completed in 1979. The federal action, although not dismissed until 1982, was "substantively completed by 1980." 394 Mass. at 843.
Mr. Masiello consulted the lawyer in connection with property claims against Perini arising out of the subway construction. The lawyer wrote Perini's insurance company inquiring about the status of the claim in September 1981 although his representation of Perini was not formally completed until the end of November 1981. In the court's view, the lawyer reasonably believed there was no conflict during the two months because he thought that documents relating to Masiello's claim had been lost and hence there was no real disagreement between the parties. All he did was to write a letter inquiring about the status of the claim. When he learned that there was a real disagreement, he bowed out and Masiello hired other counsel. The court declared that there was no evidence that the lawyer simultaneously acted for the company in one action and against it in another.
Thus, when the lawyer returned to the case many months later, after his representation of Perini was completed, the court found it appropriate to deal with the case under successive representation rules. While there had been brief simultaneous representation of the two parties, there had not been simultaneous representation, in the court's view, in a situation where the parties were in conflict. When the lawyer discovered that there was a conflict, he got out, and he got out before the situation had developed beyond an initial inquiring letter. The court in essence treated the situation as if the lawyer had declined to undertake to represent Mr. Masiello in a conflicting representation.
The fact situation in the present inquiry is significantly different from Masiello. Once the response to Law Firm's letters to the state revealed that it was Group A that was involved in the proposed state action, it was apparent that there was an actual conflict between two firm clients. The Law Firm's subsequent letter expressing concern on behalf of Client B about the proposed state action was action that was in conflict with the interests of Group A. The key difference from Masiello, however, is that there was clearly an actual conflict between the Law Firm's two clients.
Another significant difference between the two cases is that the litigation the Law Firm was handling for Client A was not "substantively completed" when the state proposed to take action, and Law Firm had not seen it through to a formal conclusion by the time it wished to recommence its representation of Client B. As we understand the facts, Law Firm was actively representing Group A when a new matter arose that pitted a regular client against Group A. In the committee's view, Law Firm may not cure that conflict by resigning from representation of Group A, over its objection, in order to represent Client B directly against the interests of Group A. We view Jelco as good law, unaffected by the SJC's opinion in Masiello.
Law Firm also refers to cases where lawyers have been permitted to withdraw from representation of one of two clients litigating against one another when a simultaneous representation problem was caused by a merger between a client represented by the lawyer and a company it was suing. In those cases, the objecting client created the conflict by its business policy and the law firm was helpless to prevent it. Law Firm in the present inquiry was not helpless. It was not representing Client B in the state matter when Group A began to operate Entity C. It could have avoided any problem by continuing its representation of Client A and declining to represent its long-term Client B in the state matter.
We therefore conclude that the initial judgment of Law Firm that it ought to withdraw from representation of Client B in the state matter once it discovered the adverse interest of Group A was the appropriate response. In our view, undertaking that same representation now would constitute a violation of DR 5-105.
The issue raised, however, is a troublesome one for law firms. How may they safeguard their representation of long-term clients against the chance that a one-shot representation of a new client will prohibit them from representing their long-term clients in an unrelated matter? There is no easy answer to that practical problem. The conflict of interest rules sometimes operate to prevent law firms from representing long-term clients. Some firms have sought to avoid these problems by getting consent from a new client like Group A at the time of undertaking representation that Law Firm may concurrently represent an adverse interest against the new client in an unrelated matter so long as no confidences of the new client are relevant to the unrelated matter. There are also some advance consent clauses that restrict only the "use" of new confidences by the firm against the new client. While there is some law suggesting that advance consent clauses offer protection in this situation, their use is relatively new. Since such a clause is not involved in the present inquiry, we are not ready to comment on our view of their permissibility.
Permission to publish granted by the Board of Delegates on September 22, 1992. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.