ABA Formal Opinion 497

Woolf_JeffreyNewhouse_Martinby Jeffrey D. Woolf and Martin Newhouse

Legal Analysis

On February 10, 2021, the Standing Committee on Ethics and Professional Responsibility of the American Bar Association (ABA) issued Formal Opinion 497 (Opinion) entitled “Conflicts Involving Materially Adverse Interests.”  As its title indicates, the Opinion attempts to define for practitioners what interests can be “materially adverse” when determining whether a conflict of interest exists under ABA Model Rules 1.9(a) (which addresses conflicts of interest between a current client and a former client on the same or a “substantially related matter”) and 1.18(c) (which addresses conflicts of interest between a current client and a prospective client on the same or a “substantially related matter”). Unlike ABA Model Rule 1.7 (the general conflict of interest rule), both Model Rules 1.9 and 1.18 use the “materially adverse” terminology when discussing conflicts of interests.

This article summarizes the Opinion and discusses other instances of potentially materially adverse interests that the Opinion does not cover, but of which practitioners should nevertheless be aware.

Model Rule 1.9(a) speaks to a conflict of interest that exists where a current client seeks representation in “the same or a substantially related matter in which the current client’s “interests are materially adverse to the interests of the former client.”  (emphasis added.)  Model Rule 1.18(c) prohibits representing “a client with interests materially adverse to those of [a] prospective client.” (emphasis added.)  As noted, the Opinion addresses some, but not all, of the issues raised by the term and the meaning of “materially adverse interests” as it appears in these rules, and how the phrase should be construed in the two rules.

First, the Opinion reviews the origins of the “materially adverse” standard and notes that “material adverseness” does not reach situations where the representation of a current client may pose a general harm to economic or financial interests “without some specific tangible harm.”  Citing Zerger & Mauer LLP v. City of Greenwood, 751 F.3d 928 (8th Cir. 2014), the Opinion notes that a fact-specific analysis is required to determine “whether the current representation may cause legal, financial or other identifiable detriment to the former client.” Id. at 933.

It then addresses three specific types of situations where “materially adverseness” can be found under Model Rule 1.9(a): (a) suing or negotiating against a former client; (b) attacking the lawyer’s own prior work for the former client; and (c) examining a former client in a deposition or trial.  Summaries of the Opinion’s treatment of each of these follows.

Suing or Negotiating Against a Former Client.

Absent written consent by the former client, suing a former client or defending a new client against a claim by a former client on the same or a substantially related matter is prohibited, as is negotiating against a former client in the same or a substantially related transactional matter.  Unfortunately, the Opinion does not address what is meant by “substantially related,” a subject that has spawned much litigation.

Attacking the Lawyer’s Own Prior Work.

Examples of attacking the lawyer’s own prior work include challenging a patent that the lawyer previously obtained for a former client, or challenging, on behalf of a new client, a real estate restrictive covenant that the lawyer previously drafted for the seller of the land.

Examining a Former Client.

Model Rule 1.9(c)(1) prohibits a lawyer from using information “relating to the representation of a former client to the disadvantage of the former client,” lawyer unless the information has become “generally known.”  Even where the information has become known, however, the lawyer may still have a conflict of interest under Model Rule 1.9 in examining the former client, if the former client’s interests are “materially adverse” to the current client and the current matter is “substantially related” to the prior matter.  Lawyers should be aware that courts have sometimes found “material adverseness” when a lawyer proposes to examine a former client, even where no information from the prior representation will be used.  For example, in Illaraza v. Hovensa, LLC, 2012 WL 115446 (D. V.I. Mar. 31, 2012), at *6-10, a lawyer who had previously represented a company’s employee-manager in a criminal case was disqualified from later representing plaintiffs in a wrongful discharge action against their former employer, where the plaintiffs contended that the employee-manager had defamed them.  The court rejected the lawyer’s promises not to use confidential information against the former client (employee-manager) and the offer not to cross-examine her former client on any topics where the lawyer had confidential information.

Matters Not Addressed in the Opinion.

Unfortunately, the Opinion does not address several types of material adverseness that frequently arise and raise unresolved issues.  Among these is the “positional conflict,” referenced in Comment [24] to Model Rule 1.7.  Suppose you concentrate in a particular area of law (e.g., franchise or landlord-tenant litigation) where you may represent a franchisor (or a landlord) in one case and a franchisee (or a tenant) in another case.  As long as you are not litigating against a current or former client, or challenging your own prior results in a previous case, then you might think there is no conflict of interest.  In fact, even if you advocate a position in one case that is contrary to a position you previously advocated in another case, Comment [24] says that this does not automatically create a conflict of interest.  However, if the position you take may create legal precedent that is “likely to seriously weaken the position taken on behalf of the other client,” then you may have a conflict of interest.  (Examples include advocating for a precedent that changes the interpretation of a law or regulation or a burden of proof.) Comment [24] concludes with the warning: “If there is significant risk of material limitation, then absent informed consent of the affected clients, the lawyer must refuse one of the representations or withdraw from one or both matters.”

Another type of conflict, not discussed in the Opinion, is the so-called “playbook” conflict, where a lawyer may be disqualified because the lawyer knows the former client’s legal or business “playbook” or strategy.  In Nasdaq, Inc. v. Miami Int’l. Holdings, 2018 WL 6171819 (D. N.J. 2018), a case mentioned in the Opinion but not discussed for this purpose, the court disqualified Fish & Richardson from representing the defendants in pending litigation because its Boston office had, over seven years before, represented Nasdaq in patent applications, even though the Boston office had been walled off from the pending litigation.  In addition to finding a substantial relationship between the present litigation and the past transactional work, the court said that Fish & Richardson knew and had shaped Nasdaq’s internal IP and patent strategy.  Weighing the applicable factors to determine whether disqualification was warranted,[1] the court concluded that, on balance, disqualification was appropriate.

One of the earliest cases in which a lawyer was disqualified for knowing the former client’s litigation philosophy, methods, and procedures is Gray v. Commercial Union Ins. Co., 191 N.J. Super. 590, 486 A.2d 721 (1983).  There, the lawyer had worked for about twenty-one years as outside counsel, defending the company’s insureds in personal injury litigation.  While the lawyer claimed he “was never made privy to any confidential or proprietary information of” the insurance company and never “receive[d] any information “regarding the administration of various of defendant’s business operations,” the insurer successfully argued that his knowledge of “its claims and litigation philosophy and its methods and procedure in handling of defending claims and litigation” was “confidential and proprietary information of” the insurer.  The court found that the lawyer “necessarily became familiar with such useful information as the strengths and weaknesses of this corporate client’s decision makers [and] their attitude towards settlement.”  Accordingly, the lawyer and his firm were disqualified from representing the plaintiff in that case.  Although not discussed in Gray because it predates the ABA Model Rules, this “playbook information” may be a subset of “confidential information referenced in Comment [3] to Model Rule 1.9, which says in pertinent part:

Matters are “substantially related” for purposes of this Rule if . . . there otherwise is a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter. . . .  In the case of an organizational client, general knowledge of the client’s policies and practices ordinarily will not preclude a subsequent representation; on the other hand, knowledge of specific facts gained in a prior representation that are relevant to the matter in question ordinarily will preclude such a representation.  A conclusion about the possession of such information may be based on the nature of the services the lawyer provided the former client and information that would in ordinary practice be learned by a lawyer providing such services.  (Emphasis added).

Accordingly, an in-house lawyer or an outside counsel who formerly had regularly represented a client should be wary of undertaking a representation that could be characterized as relying  on the lawyer’s knowledge of unique or confidential information of the former client in suing the former client.

Materially Adverse to a Prospective Client.

Almost the entire Opinion is devoted to conflicts with former clients.  It does, however, discuss one example of materially adversity toward a prospective client, In re Carpenter, 863 N.W.2d 223 (N.D. 2015).  In that case an individual consulted the lawyer about a matter adverse to the Christian Science Church of Boston. The prospective client had discovered that mineral rights to land in North Dakota had been left by a decedent to the Church and hoped for a fee in bringing it to the Church’s attention.  After declining the representation, the lawyer took the same information to the Church himself and offered to represent the Church with respect to the mineral rights.  This was found to be “materially adverse to the prospective client’s interests.”

Conclusion

The Opinion concludes by noting that, even if a current representation is “materially adverse” to the interests of a former or a prospective client and the matters are “substantially related,” it may still be possible to represent the current client.  However, that will require informed consent, confirmed in writing, by the former or prospective client.  Importantly, however, that consent does not in itself waive the lawyer’s obligations to maintain the confidentiality of all information gained from the prior representation of the former client or the consultation with a prospective client.  For that, the Opinion notes that the lawyer must obtain a separate informed consent, also confirmed in writing, under Model Rule 1.6.

It is important to note, in considering whether a separate consent under Rule 1.6 is required, that while the Massachusetts version of Rule 1.6(a) is restricted to “confidential information related to the representation of [the] client,” ABA Model Rule 1.6(a) refers more broadly to “information related to the representation of [the] client.”  The prudent practitioner would be well advised to take a more expansive view of what information requires “informed consent,” particularly if the lawyer practices outside of Massachusetts or if the client is located outside of Massachusetts in a jurisdiction that has adopted the broader language of the ABA Model Rule (such as, e.g., Rhode Island).

Finally, because, as discussed above, the Opinion does not identify all instances of “material adversity,” ethical practice requires a lawyer not to rely entirely on the Opinion.  A lawyer should also be familiar not only with the omitted examples discussed above, but, as importantly, with the court and disciplinary decisions in the jurisdictions in the which the lawyer is active. These, along with the Opinion, should guide the lawyer on this issue.

[1] Citing Wyeth v. Abbott Labs, 692 F. Supp. 2d 453, 459 (D. N.J. 2010), the NASDAQ Court said it should consider the following factors in determining whether disqualification is warranted: (1) prejudice to the former client; (2) prejudice to the new client; (3) whether the law firms representation of the former client in the former matter has allowed the new client to gain access to any confidential information relevant to this case; (4) “the cost—in terms of both time and money—“for the new client to retain new counsel; (5) “the complexity of the issues in the case and the time it would take new counsel to acquaint themselves with the facts and issues”; (6) “which party, if either, was responsible for creating the conflict.”

Jeffrey D. Woolf is an Assistant General Counsel to the Board of Bar Overseers and is a member of the BBA Ethics Committee.

Martin J. Newhouse, President of the New England Legal Foundation, is a member of the SJC Clients’ Security Board and BBA Ethics Committee.



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