Freivogel on Conflicts

Opposing Lawyers Negotiating
a Law Practice Merger

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Lawyer A is representing Party A in a suit against Party B. Lawyer B is representing Party B. While at the court house, Lawyer A mentions to Lawyer B the possibility of merging their practices. That leads to lunch and more discussions. Soon, the two lawyers are exchanging financial information. Do these lawyers need to tell their respective clients what is going on? It is clear that, under Model Rule 1.7(b), they must tell them, at some point. But, when?

        ABA Op. 96-400 (1996). The ABA Committee says that the lawyers must disclose this sort of thing to their clients when the lawyers’ interest in combining becomes "concrete, communicated and mutual."  To the same effect, see D.C. Op. 367 (2014); Phila. & Pa. Jt. Op. 2007-300 (2007); Ky. Op. E-399 (1997); N.C. Op. 2016-3 (Jan. 27, 2017); Rest. Sec. 125 cmt. d; Model Rule 1.7 comt. [10].

        Rotunda & Dzienkowski § 1.7-6(f).  This is an excellent treatment of the subject. That section discusses the ABA Opinion 96-400 in some detail.

        N.Y. City Op. 1991-1 (1991).  This is a comprehensive discussion of the ethical obligations of lawyers discussing employment while they are on opposite sides.  It and ABA Op. 96-400 (1996) are discussed at "Ethical Issues Can Cloud Job Search" by James M. Altman in the October 20, 2000 New York Law Journal.

        S.C. Op. 00-13 (2000) is a little odd.  It deals with probate litigation in which the two lawyers in question represented parties taking the same position.  It discusses the lawyers' obligations pre-merger, and then post-merger.  Pre-merger, it talks about the need to continue to have the best interests of their clients in mind, but there is no discussion of disclosures.  Post-merger, the opinion affirms that the combined firm can continue to represent the two parties as long as their interests remain the same.  The opinion then discusses the need for disclosures to the parties.

         The cases.  Professor Rotunda also cites two cases in which lawyers had talked their clients into settlements while they were have serious discussions with the lawyers on the other side of their cases. Stanley v. Richmond, 41 Cal. Rptr. 2d 768 (Cal. App. 1995); and McCafferty v. Musat, 817 P.2d 1039 (Colo. App. 1990). In each case, the court held that a client had a malpractice cause of action against that client’s lawyer because the lawyer had talked the client into a settlement without telling the client about the merger negotiations.

        In Kala v. Aluminum Smelting & Refining Co., 688 N.E.2d 258 (Ohio 1998), a lawyer changed firms. He went to the firm on the other side of a case he was handling, and the new firm set up a screen. The court adopted a pro-screening rule, but ruled that the lawyer should be disqualified because he had waited too long to tell his client about his negotiations with the new firm.

        Basis for new trial.  Yates v. Dublin Sir Shop, Inc., 579 S.E.2d 796 (Ga. App. 2003).  Lawyer King had represented the Yates on several finite matters not related to this case.  After this case began, King told the Yates that he was joining the law firm for the other side of this case, which he ultimately did.  The Yates did not raise the issue during the two years the case was pending.  Only after they had lost the case and during the appeal did the Yates raise the conflict as a basis for a new trial.  King denied ever discussing the issues of this case with the Yates (the implication being that he did not share any relevant confidences with his new firm).  Based upon this denial and the delay, the court rejected the claimed conflict as the basis for a new trial.

         Denial of fees.  In Re Eastern Sugar Antitrust Litigation, 697 F.2d 524 (3d Cir. 1982) was a class action.  While the case was pending, one of the plaintiffs' law firms had been negotiating a merger with one of the defendants' firms.  The opinion dealt with whether the plaintiffs' law firm should have been denied fees because it waited too long to inform the court of the merger negotiations.  The court found that the firm had waited too long and found that this failure created the "appearance of impropriety" under Canon 9 of the old Pennsylvania Code of Professional Responsibility.  It remanded the case to the lower court so the lower court could determine what, if any, fees should be forfeited.

        The following is a description of an item appearing in the October 11, 2000, Current Reports, ABA/BNA Lawyers' Man on Prof. Respons.  Ogden Allied Abatement & Decontamination Services Inc. v. Consolidated Edison Co. of New York Inc., N.Y. Sup. Ct. N.Y. Cnty., No. 606301/1996, 9/12/00).  According to the article, a lawyer on one side of a pending litigation met with lawyers on the other side to discuss his going to work for their law firm.  The court said that the lawyers should have stopped opposing each other while having these discussions.  The court did not disqualify anyone, because the lawyer wound up not joining the other firm.

        In Concat LP v. Unilever, PLC, 350 F. Supp. 2d 796 (N.D. Cal. 2004), the court held that the fact that one lawyer is negotiating to join opposing law firm is not alone grounds for disqualification.

        In re U.S. Bentonite, 2015 WL 5179425 (D. Wyo. Sept. 3, 2015). We will be brief on this one because a thorough and delightful discussion of it appears at the September 8, 2015, posting at Keith Swisher’s DQ’d. Lawyer at Firm A represented Chapter 11 Debtor. Firm B represented a major creditor. During the crucial wind-up period and settlement of creditors’ claims, Lawyer was negotiating with Firm B for employment. After accepting an employment offer, Lawyer withdrew from this case but did not disclose the negotiations. Firm A ultimately did disclose what had transpired. The US Trustee objected to Firm A’s fee applications and sought Firm A’s disqualification. In this opinion the court ordered that Firm A forfeit fees covering the crucial period but did not order Firm A disqualified.

        Criminal cases; defense counsel joining prosecutors' office as grounds for relief (or not).  Atley v. Ault, 191 F.3d 865 (8th Cir. 1999); Garcia v. Bunnell, 33 F.3d 1193 (9th Cir. 1994); People v. Marshall, 242 Cal. Rptr. 310 (Cal. App. 1987); People v. Doggett, 625 N.E.2d 923 (Ill. App. 1993); Commonwealth v. Maricle, 10 S.W.3d 117 (Ky. 1999); Catala v. State, 897 A.2d 257 (Md. App. 2006); and Commonwealth v. Agbanyo, 872 N.E.2d 758 (Mass. App. 2000).

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