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Journal of the Institute for the Study of Legal Ethics

Article Title

Suing a Current Client

Publication Date

10-1-1996

Introduction

A. The Issue Stated

General Manufacturing Co. is a diversified producer of consumer items. It has a storage and distribution facility in suburban Capital County. Each year, General Manufacturing asks the law firm of Able & Baker to file a written protest of the property tax assessment on the facility. Able & Baker has done no other kind of legal work for General Manufacturing. This year's protest has been submitted but has not yet been resolved.

Able & Baker has now been consulted by Marlene Wilson. Ms. Wilson was seriously injured by a defect in a hair dryer made by General Manufacturing. She has asked Able & Baker to bring a product liability suit against that company on her behalf and has agreed to pay a contingent fee. Over 100 such suits are usually pending against General Manufacturing at any given time. Previous such cases against General Manufacturing in Capital County have been defended by Young & Zeller, another local firm.

The example is simple, but it poses the issue of this paper. If Able & Baker undertook to file Ms. Wilson's cause of action, the firm would be in a position of filing suit against a company that is its client in a completely unrelated matter.

If General Manufacturing were a former client of Able & Baker, the firm clearly could take the case. The test would be whether a product liability case is a matter "substantially related" to protesting a tax assessment. The answer clearly would be no.

However, in our illustration, Able & Baker is handling a pending matter for General Manufacturing, making it a current client. In Formal Opinion 93-372, the ABA Committee on Ethics and Professional Responsibility articulated - only somewhat apologetically - what now seems widely thought to be the governing rule in such current client cases:

[W]hen corporate clients with multiple operating divisions hire tens if not hundreds of law firms, the idea that, for example, a corporation in Miami retaining the Florida office of a national law firm to negotiate a lease should preclude that firm's New York office from taking an adverse position in a totally unrelated commercial dispute against another division of the same corporation strikes some as placing unreasonable limitations on the opportunities of both clients and lawyers. [Howeverj . . . the Model Rules quite correctly treat such a situation as presenting a conflict.

The Committee was alluding to ABA Model Rule 1.7(a) which provides: (a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless: (1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and (2) each client consents after consultation.

One Committee member was even more definitive about the meaning of Model Rule 1.7(a) in his recent dissent to ABA Formal Opinion 95-390:

All members of this Committee agree that a lawyer may never take a position directly adverse to a client... no matter how minor the matter and no matter how distant geographically, by industry, or by personnel, the new proposed representation is from the original one the lawyer is handling. Not only is that the rule, but that is what the rule should be.

It has long seemed to me that such a categorical prohibition on bringing suit on behalf of one client against another of the lawyer's present clients is based on a superficial reading of the relevant cases, a reading out of context of a poorly-drafted Model Rule, and a seeming disregard of the arbitrary costs imposed on lawyers and litigants by such a rule.' I suggest, in short, that the proposition "a lawyer may never take a position directly adverse to a client" is both not the rule and not what the rule should be.

B. Who Cares What the Rule Is?

Filing suit against one current client on another's behalf might seem so rare as not to matter. It has not been treated extensively in law school teaching materials." However, at least one hundred cases and ethics opinions have addressed the issue in a significant way. Indeed, bringing claims that raise the issue has become something of a cottage industry.

The issues discussed here have also deeply divided members of the ABA Committee on Ethics and Professional Responsibility. Formal Opinion 95-390,12 dealing with application of the rule in the corporate context, was over two years in the drafting and produced four impassioned dissents from a committee that traditionally issues unanimous opinions. Clearly, an issue that divisive deserves closer analysis.

Furthermore, the rule now has become federalized. In re Dresser Industries was a class action antitrust case brought against makers of oil well drill bits. Susman Godfrey was counsel for the plaintiffs; it also currently represented Dresser in two unrelated cases. The Texas Disciplinary Rules of Professional Conduct are different from Model Rule 1.7(a) and provide that a lawyer is only prohibited from representing one client against the other if the matters are "substantially related." The District Court followed the Texas Rules and found no substantial relationship between the cases. However, the Fifth Circuit said the Texas Rules were not controlling in federal court; a uniform federal rule applies, and "[ulnquestionably, the national standards of attorney conduct forbid a lawyer from bringing a suit against a current client without the consent of both clients."

Finally, the issue became even more focused for me during redrafting of the conflict of interest chapter of the Restatement of the Law Governing Lawyers. Putting the issue in the terms of our example:

The same facts as in the original illustration, but this time Marlene Wilson is not an injured consumer but someone who periodically sells $1,000 or so worth of office supplies to General Manufacturing. GM has redrafted its purchase order and Ms. Wilson has called her regular lawyers, Able & Baker, to explain the new terms to her. Able & Baker realizes it may have to call General Manufacturing itself for clarification or to propose terms Ms. Wilson would prefer. Does Ms. Wilson's call present Able & Baker with a conflict of interest? Does Able & Baker have to get the consent of both General Manufacturing and Ms. Wilson before responding to her question?

My own view is almost certainly not; in the example, no suit has been filed against a current client, and it is inconceivable that the adverse effect on General Manufacturing of Ms. Wilson's preferred terms would be material. But some of my colleagues vigorously disagreed; in their view, the same logic that condemns filing suit against a current client also condemns even giving advice about business dealings with General Manufacturing in spite of the fact that Able & Baker's representation of General Manufacturing is in a completely unrelated matter and General Manufacturing has other counsel with respect to the terms of the purchase order. Where there is that much debate about what concededly would be an extension of the basic rule, the rule itself seems in need of reexamination.

C. Some Preliminary Issues

Before developing my thesis, three obvious objections to it should be articulated and addressed so as to highlight what my thesis is and is not.

1. Suing a current client is foolish. Any client has an absolute right to fire its lawyer and to tell others how badly the client was treated. The client who is sued by its lawyer is likely to exercise that right.

I agree. Nothing in this paper will advocate that lawyers file suit against one of their clients on behalf of another. The problem typically arises, however, in a case like our illustration; the lawyer represents a client with a significant and apparently meritorious claim against a client for whom the lawyer's work is episodic, modest in amount, and wholly unrelated to the issues in the litigation. Or, the issue may even arise when the client to be sued is a third-party defendant in a case not initiated by the suing client at all; the situation is simply one in which competence requires filing the third party action to protect the defendant against liability and the question is whether new counsel must be retained to bring that action.

The bottom line question in such cases is whether one - often long-time - client who seeks the lawyer's help in bringing or defending a matter must always be required to retain another lawyer because an adverse party is also a client of the preferred lawyer in some other matter. A categorical prohibition says "yes"; I say that answer has to be nonsense.

2. Clients may consent to waive the prohibition. The rule should present no practical problem. The effect of the rule should only be to require a lawyer's communicating with his or her clients to avoid giving any of them an unexpected surprise.

Again, I agree in theory. Except when warning is not an option - such as when seeking an emergency restraining order - a lawyer would be well advised to tell both the client seeking action and the client against whom the lawyer plans to proceed about the proposed representation and the lawyer's relation to each litigant. Good client relations are important, as is compliance with the ethical requirement of communication with clients about matters material to the respective representations.

On the other hand, the problem discussed in this essay typically arises because the client threatened with suit refuses to grant consent, often solely out of a desire to make life difficult for the opponent. Indeed, it is widely suspected that clients in the position of General Manufacturing routinely give small portions of their legal work in a community to each of several law firms, precisely to be able later to invoke the categorical prohibition on those firms' later filing suit against it. I argue here that that tactic should not always be successful.

3. Bright line rules are desirable so as to reduce the need for collateral litigation. Clear rules might create anomalous results in a few cases, but in the vast majority of cases, they prescribe what a lawyer may and may not do and thus reduce costs by permitting issues to be resolved more expeditiously.

Again, that seems sensible in the abstract. The problem, however, is that the arguably categorical prohibition has turned out not to provide clarity after all. All sorts of questions arise such as: Is "current client" status determined as of the time the suit is filed, or is the relevant time when the lawyer was first consulted? Suppose the named client is not being sued but the defendant is the client's spouse or child, parent or subsidiary? When is representation "directly" adverse rather than only "indirectly" so, and should anybody care? Suppose different lawyers are involved in the various cases, but the lawyers are partners in offices far distant from each other? Suppose the lawyers share office space but are not otherwise related?

None of these questions is imaginary; each has required costly litigation. Further, I believe that because the categorical rule appears both simple and arbitrary, it represents an apparently low-cost way for a party to delay proceedings or impose a burden on an opponent. Thus, litigation tactics alone likely have dictated trying to stretch the number of cases that fit within the principle.

D. My Proposal

This essay will argue that the rule should stop short of a categorical prohibition against a lawyer's filing suit against a current client.

A "substantial relation" between the cases should not be required; that test goes primarily to protection of confidential information and more than that is at stake in these cases, but I believe a single rule is being used today to deal with two quite different issues.

First, in the case of the client being sued by "its" lawyer, the question should be whether a reasonable client in the circumstances of the case would perceive a breach of loyalty, "loyalty" being understood as more than exclusively a financial concept.

Second, in the case of the client on whose behalf suit is brought, the test should be whether there is a credible basis for believing the lawyer may not represent that client wholeheartedly out of a desire to preserve good relations with the client being sued.

At minimum, courts should require a showing that the proposed suit against a current client will have a "material" adverse effect on representation of one or both current clients before prohibiting or sanctioning the representation.

The approach suggested here would require an exercise of judgment that might seem to provide less certainty and predictability than a categorical prohibition would produce, but I believe that in the case of this rule, the opposite would prove true.

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