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Lateral Moves and MRPC 1.10

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Lateral Moves and MRPC 1.10

The stars have all aligned. You have an attorney position to fill, and have found the perfect candidate with the right credentials, experience and book of business, who clears the initial conflicts checks (review of clients and matters on which the attorney is/was actively working). The attorney, looking for more interesting and meaningful work, better opportunities for advancement, and more money, has accepted your offer and is ready to start work. Your firm knows the value of having screening mechanisms in place, but even with all the “T”s crossed and “I”s dotted, the potential for a conflict of interest may arise. How can your firm implement an effective conflicts of interest screen and have some comfort in its effectiveness if and when the time comes to defend against a disqualification motion? During this course, we will consider how to build, implement and regulate effective screens for lateral hires.

Presenters

Tracy Kepler
Risk Control Consulting Director, Lawyers’ Professional Liability Program
CNA

Transcript

Tracy Kepler - Welcome to the program, Lateral Moves and Model Rule of Professional Conduct 1.10. My name is Tracy Kepler, and I will be with you for the next hour, speaking to this topic.

 

So where do we start? The stars have all aligned. You have an attorney positioned to fill, and you've found the perfect candidate with the right credentials, experience, and book of business, who clears the initial conflicts checks, meaning the review of client and matters on which the attorney is or was actively working. The attorney, looking for more interesting and meaningful work, better opportunities for advancement, and a better financial position, has accepted your offer and is ready to start at work. Your firm knows the value of having screening mechanisms in place, but even with all the Ts crossed and the Is dotted, the potential for a conflict of interest may arise. How can your firm implement an effective conflicts of interest screen and have some comfort in its effectiveness if and when the time comes to defend against a disqualification motion? At the end of this program, we hope that you will be able to understand the purpose of conflicts of interest screens, identify and comply with the provisions of model rule 1.10 A. And we are looking at the model rules here.

 

Every state's rules do differ. And also learn the elements of an effective screen. Ethics rules are used in order to avoid imputation of disqualifying conflicts of interest in a number of situations. The ABA Model Rules of Professional Conduct permit the use of ethical screens to prevent imputation of conflicts where a disqualified lawyer has moved to a law firm from a judgeship or other decision making rule. And that rule is model rule 1.12. Or the disqualified lawyer is moving from a private firm to government or vice versa. That's model rule 1.11. In addition, model rule 1.18 that talks about perspective clients, allows a firm to prevent disqualification from a perspective client when a law firm receives confidences from that perspective client, but ultimately does not undertake the representation of that perspective client, providing the screening requirements of the rule are met. Most recently, 2009 amendments to model rule 1.10 permit the use of ethical screens to prevent imputation of certain conflicts.

 

When a lawyer moves between private firms and the disqualifying conflict arises from work done at the prior firm, we're talking about the former client rule, model rule 1.9. So what is the purpose of conflict screening? The purpose of conflict screening is really threefold. First, to assure the effective parties that confidential information known by the disqualified lawyer remains protected and is not shared. Second, to prohibit the disqualified lawyer from participating in the matter at issue. And third, to ensure that other employees of the firm who are working on the matter do not communicate with the disqualified lawyer with respect to the matter. It is important to remember that ethical screens do not remove a disqualified person's conflict of interest. Rather, they are intended to form a cordon around the disqualified person or persons, and then avoid the operation of the imputation rule from causing the disqualification of the disqualified person's entire firm. ABA Model Rule 1.10K defines screening as the isolation of a lawyer or other person with the conflict from participation in a matter through the timely imposition of procedures within a firm that are reasonably adequate under the circumstances to protect information that the isolated lawyer is obligated to protect under these rules or other law.

 

I think going back to the glossary section of the ABA Model rules to look at the definitions is really important. This definition is fact specific. For example, whether two or more lawyers constitute a firm is something that will depend on the facts and circumstances at issue. Let's look at this situation. A law firm where two practitioners who share office space and occasionally consult or assist each other are ordinarily not regarded as a firm. But what are the relevant facts when we make this analysis or we look to consider this issue? How they present to the public, the terms of any formal agreement between associated lawyers. And mutual access to information concerning the clients they serve. When we are looking at a small firm it is much harder to make the screens effective.

 

Let's take a look at this by looking at the case of Oman versus Denso, a case out of New Mexico from 2015. In that case, the New Mexico Federal Court magistrate judge granted disqualification. Defendant's counsel from 11 consolidated employment cases after the firm had hired a paralegal from the firm representing the plaintiffs. The paralegal had worked extensively on the cases, had interviewed most of the clients and had detailed information about plaintiff's legal strategies, and the bottom line settlement numbers. So the question here that the court was asked was whether the paralegal's personal disqualification would be imputed to the entire six lawyer defense firm, even with a timely screen. What were the screens terms in this case? Well, they isolated the paralegal's office from the locked office where the files on the cases were stored, mail relating to the case was separately routed, electronic documentation was password protected, and an office-wide admonition was issued against sharing confidential information and even speaking openly about the cases within the office. The court's holding said that the paralegal's disqualifying conflict would not be imputed to the rest of the firm. But continued that the representation was still prohibited because the screen would not be effective as the firm was too small. Remember only six attorneys. Half of the firm's attorneys were involved in the consolidated case, and the firm's staffing needs were so pressing that they could not delay the paralegal start date even three weeks until after a scheduled mediation of the case. The firm's small size made it unlikely that the confidential information could actually be sealed off. Other relevant factors that the court looked to were that the information the paralegal had was extremely sensitive and relevant. And she had been very heavily involved on the other side of the case. In addition, there was a short time lag, two days between the defense firm's first contact with the paralegal and the implementation of the screen. Let's look at another example. In this example we're gonna consider governmental entities and a law department of an organization.

 

 There's no question that the members of the department constitute a firm for ABA Model Rule 1.0 C, which defines a firm. The uncertainty here comes with the identity of the client. For example, it's unclear as to whether the law department represents a subsidiary, an affiliated corporation, or the corporation itself. Let's look at the case of Iowa Supreme Court attorney disciplinary board versus Johnson, a case out of Iowa in 2007. In this case, the lawyer went from being a member of the county prosecutor's staff to the not for profit agency that advised on the appointment of guardians ad litem and juvenile cases. In this opinion, the court reaffirmed that a would work for cases in which she had been involved while with the county. However, because she personally involved herself in two cases upon she had worked while with the county, she actually received a public reprimand in that disciplinary matter. Another example comes in the form of a recent ethics Opinion out of Texas. In Texas Opinion 693, which came out in February of 2022, a lawyer moved from firm A to B. While at firm A, lawyer represented government agency X. Firm B is suing X. According to this Texas Opinion, the lawyer and firm B may be disqualified. The fact that X's meetings are public may not serve, or may not save firm B because in part, some of X's activities may involve executive session. Because Texas is not a screening state, a screen will not solve the conflict here. Screening provision in Texas version of ABA Model Rule 1.11 would only apply if the lawyer had been a public official. It would not apply to a non-public official moving from one private practice law firm to another.

 

Another case, while not a governmental entities matter, it does involve a clerk of the courts and effective screening. In the case of screening judges law clerk in Fundamental Long Term Care Incorporated, a case out of Florida in 2019, the Opinion denies motions to recuse the bankruptcy judge and his law clerk. The problem in this case was that the law clerk had previously practiced in the law firm for certain creditors, and actually may have learned things that might taint his behavior as the judge's clerk. As to that claim, in this opinion, the bankruptcy judge said that the remedy in such a situation is for the judge to screen the clerk from this case. And the judge had done so. And one final example on the definition of a firm vis-a-vis screening. A legal aid and legal services organization. Here, the definition turns on the structure of the organization. In other words, the entire organization or different components of it may constitute a firm or firms for the purposes of ABA Model Rule 1.0C Another example where facts really did make a difference in whether or not the attorneys were characterized or operating as a firm for purposes of ABA Model Rule 1.0C and Imputation 1.10 conflicts issues, it's the case of Brady versus Stark, a case out of the Missouri Court of Appeals from 2017. In that case, it was an independent law practice that shared office space. They did not advertise together. They didn't list each other on accounts or insurance. They did not share letterhead, websites, email addresses, or business cards, or even share forms. The office sign read, "Stark Law Offices," and they did share a receptionist and reception area. And sometimes clients used Stark's phone number to reach Brady. In that matter, based on those facts, the court held Brady and stark to be a single firm for imputation issues.

 

One other definition we need to consider before jumping into a further discussion, sort of set the stage, if you will, is ABA Model Rule of Professional Conduct 1.0K, the definition of screening itself. First, it applies to situations where screening of a personally disqualified lawyer is permitted to remove imputation of a conflict of interest under rules 1.10, 1.11, 1.12 or 1.18. It's purpose. It is assurance that effective parties who possess confidential information known by the personally disqualified lawyer remains protected. And the definition is isolation from any participation in a matter through timely imposition of procedures, which are reasonably adequate to protect information.

 

Rule 1.1 of the ABA Model Rules of Professional Conduct permits a law firm to remove amputation of a lawyer's disqualification if it is based on rule 1.9A or B, which is the former client rule, and arises out of the lawyer's association with a prior firm. As long as the disqualified lawyer is timely screened and apportioned no part of the fee in the matter. Subsection two of Rule 1.1A goes even further and requires that in addition to the disqualified lawyer being timely screened from any participation in the matter, the law firm must ensure that first, the conflicted lawyer is apportioned no part of the fee therefrom, second, each affected client receives written notice that enables the former client to ascertain compliance with the provisions of this rule. And three, certification of compliance with these rules and with the screening procedure are provided to the former client by the screened lawyer and by a partner of the firm at reasonable intervals upon the former client's written request and upon termination of the screening procedures.

 

Rule 1.0A2 also explains that the written notice should include a description of the screening procedures employed, a statement of the firms, and of the screen lawyers compliance with these rules. A statement that review may be available before a tribunal, and an agreement by the firm to respond promptly to any written inquiries or objections by the former client about the screening procedures. At least 18 jurisdictions have adopted a screening rule substantially similar to ABA Model Rule 1.10A2, which permits the screening of a lateral lawyer irrespective of the lawyer's level of involvement with the former firm's client or matter. Another 14 states have adopted rules where the availability of screening depends on the lateral lawyer's knowledge of or involvement in the relevant matter or former client. However, even if your jurisdiction has a non-consensual screening provision similar to Rule 1.10, the ABA Model Rule, the court may still disqualify your firm once the lateral hire has joined. It's very important to consider what your state's jurisdictions rule, rule 1.10A2, and well, A, is to make sure that you're in compliance and know what screening is required or not required.

 

A good example here is a case out of Ohio from 1998. It's the Kayla versus Aluminum Smelting and Refining Company Incorporated. That was a case where screens were not allowed inside switching cases, despite the availability of such a remedy in other former client conflict situations. Another case out of New Jersey in 2012 was the 21st Century Rail Corp versus New Jersey Transit Corp. In that case, no screen was allowed without former client's consent in subsequent adverse representation in the same matter. And lastly, a case out of California, the Beltran versus Avon Products Incorporated, where a screen does not block the firm's imputed disqualification when the screen lawyer has key confidential information from substantially related cases. Further, since not all jurisdictions have adopted a private firm's screening rule, circumstances may arise where as a result of the conflict, the hiring firm may be required to withhold an offer of employment. For example, if the hiring firm performs an initial conflict check of the perspective lateral hire's clients, and determines that there is a conflict with the former firm. In other words, if the lateral hire actively represented the client while at the former firm and the pending or proposed representation at the new firm is in the same matter, an attorney may not switch sides in the middle of representation, or is in a substantially related matter. The firm cannot drop the client in order to hire a desired lateral attorney. As I've said, understand the rules of your jurisdiction regarding lateral screening and imputed disqualification is imperative.

 

Some states disallow screening altogether. For example, the case of Audio MPEG Incorporated versus Dell Incorporated, a case out of the Eastern district of Virginia in 2016. This case was a motion to disqualify case arising out of a patent matter involving the alleged infringement of the MPEG standards. The patented technologies facilitate the playing of music and other audio on electronic devices. In this matter, at issue was a lateral attorney who represented the plaintiff's in litigation and in a US patent and trademark office reexamination proceeding. He then came to defendant's firm and at the stated he had no documents related to the prior representation, didn't recall much, if anything, about the case, and didn't remember performing any affirmative work on them. A screen was erected and the court actually found that there was no evidence to suggest that there had been an improper exchange of privileged information. However, the court also found that even with the screening, it would not cure the impropriety. While these rules provide general guidance on how to comply with your ethical obligations, they leave many gaps with regard to the specifics and practicalities of implementing an effective screen in the law firm setting. Developing and maintaining effective screens when a lateral hire joins the firm are critical, as a failure to do so may result in a disqualification or a fee discouragement motion for the firm, as well as a potential malpractice claim and reputational harm to the firm.

 

So let's talk about the elements of an effective screen. An effective screen consists, as I said, of several elements. Each of these elements may not be appropriate for every situation and every law firm. Firms should consider those elements applicable to the specific case, and then select those that are appropriate and necessary in light of the nature of the conflict, the firm's operation, their risk threshold, and the personalities of the effective clients. The first element we'll start with is timing. In order to be effective, screening measures must be implemented as soon as practical after a newly hired lateral lawyer or the law firm knows or reasonably should know that there is a need for screening before or at the time the conflict arises. Initially, when the lateral hire provides his or her list of former clients to the hiring firm, the firm must look for instances where it is representing a client adverse to a former client of the lateral hire. The firm must then determine whether the prior work merits a screen, specifically questioning whether the lateral hire has information material to the new matter, or whether the matters are substantially related. In addition to knowing what to look for with onboarding of lateral hires and conflict of interest, timing is critical. Courts have emphasized the need for a screen to be established in a timely manner in order to ensure that attorneys adverse to the laterals former clients are not infected with protected client information. Some have even suggested that the screen should be in place at or before the time the lateral begins working at the hiring firm, A best practice is to complete conflicts checks on all parties, including former clients, far enough in advance of a lateral start date to provide sufficient time for any needed follow up and time to implement a screen. In many situations, if the new firm has done a good job of conflict checking during the recruitment process, it will know of the need for the screen well before the lateral attorneys first day on the job. At a minimum, a law firm must direct a screen promptly after learning of a disqualifying conflict.

 

The Philadelphia Ethics Opinion 2014-1 really talks about encouraging the use of Rule 1.6, the duty of confidentiality disclosure provision to run a conflicts check as soon as possible upon the lawyer's joining of the law firm. Another case discusses this timing standard and provides a good definition of a timely screen. That case is a case out of the central district of California from 2015 entitled Signature MD Incorporated versus MDVIP Incorporated. In this case, the plaintiff, a health concierge service, sued its competitor for antitrust violations, contending that the defendant utilized anti-competitive tactics and agreements to preclude competition. The defendant moved to disqualify plaintiff's counsel, an AM LAW 200 firm, on the basis that it previously represented the defendant from 2008 to 2012. The court motion granted, or granted the motion finding first that there was a substantial relationship between the subject of the firm's current and former representations. And two, the firm failed to establish that an effective ethical screen was implemented. On the first point, the plaintiff's antitrust allegations included among other things, the defendant's use of exclusive dealing agreements with physicians to lock competitors out of the concierge medicine membership program market. The court found that there was a substantial relationship between the firm's current representation of plaintiff and prior representation of defendant in a suit for misappropriation of trade secrets by a group medical practice, because both suits focused on defendant's practices of recruiting and engaging physicians in its concierge program. The tainted attorneys who worked out of a separate regional office shared privileged and confidential information with the attorneys working on the new file. On the second point, the firm had the burden of establishing that an ethical screen had been implemented.

 

Citing well established law in California, the court noted that an effective ethical screen must be timely, meaning it should be implemented before undertaking the challenged representation or hiring the tainted individual. In this case, the screen was implemented two days after the firm was retained by the plaintiff, but there was no evidence that preventative measures were in place to prevent disclosure of privileged information during that time. Another element of an effective screen is internal and external notice. The disqualified lawyer who will be screened must be informed that he or she is screened from the particular matter or matters, and also are the reasons for the screen. The notice should be in writing, which can be as simple as an email or more formal, such as a written memorandum circulated through the firm, maintaining documentation of the screening notification and the receipt, or the written acknowledgement of same is important evidence in the event that an issue later arises. You should also provide notice to all of the staff who are working on the screened matter, that the screen has been erected and how that screen will operate, advice firm attorneys and staff of the new lateral attorney's start date, the screen, and that they should not discuss the matter involved with the new attorney. Again, being able to prove delivery and receipt of this notice on a timely basis may prove to be critical. For example, in Martin versus Atlantic Care, a case out of New Jersey in 2001, a lawyer moved from one firm where he was representing the defendant and worked extensive hours on the case, to a new firm representing the plaintiff in the same matter. The new firm timely implemented a screen for the new lawyer from the case, but never memorialized it in writing. This factor, among other issues, tip the scales in favor of the first firm's motion to disqualify the new firm.

 

And lastly, you must provide notice to the effective clients. ABA Model Rule 1.10A2 requires that a law firm give notice to affected clients when an ethical screen is erected for a conflict arising from prior work at a different law firm. Rule 1.10A2 also requires subsequent certification of the screening procedures, both at regular intervals and upon client written request. When drafting the notice and subsequent certifications to the affected clients, the law firm must be thorough, specific, and prepared for the outcome. On one hand, a client who receives this type of proactive notice may raise additional questions, challenge the screen, and possibly even seek disqualification of the firm. On the other hand, if the notice is not sufficiently precise, one of the following may occur. First, an affected client may feel betrayed, or become suspicious as to the reasons why the law firm did not permit the affected client to assess the dangers from the potential conflict or the adequacy of the screen elements at the outsets. And second, a court or attorney disciplinary agency who we receives a client grievance based upon the notice or certification may be more likely to find the screen inadequate. Another element of an effective screen is physical and operational separation.

 

Law firms should employ both the physical and operational separation of the disqualified lateral attorney from the screened matter. This technique may include one of the following. First, having the matter handled by staff located in different geographical offices, different floor or sections in the same office, or in a separate practice group. Second, minimizing the amount of communication and collaboration between staff on both sides of the screen, and ensuring that shared support staff such as administrative assistance, paralegals, interns, externs of counsel, contract attorneys and investigators do not operate on both sides of the screen. Third, limiting access to physical or electronically stored information concerning the screened matter from the disqualified lateral attorney. Only lawyers and staff working on the matters giving rise to the conflict should have access to the files on the screened matters. These limitations may include the use of document managed software controls to block disqualified persons from having access to specified electronic files, as well as physical locks.

 

For example, on offices or file cabinets to prevent disqualified persons from having access to or sharing information with those handling the screened matters. To highlight these issues, let's take a look at three cases. First in Line Trust Corporation Limited versus Lichtenstein, a New York case out of 2011. We have a motion to disqualify a firm that was granted as a result of flaws in the law firm's screen allowing access to the firm's document management system. This case is not about screening a lateral in the classic sense, but it's really about a failed screen. Here, law firm advised group one on a financing. The case arises out of that financing. Bank and group one are co-defendants. Law firm is now doing work for the bank on this case. Group one moved to disqualify law firm. And in the opinion, the court granted the motion. The court first said that group one and bank would most likely become adverse in this case. The law firm claimed to have erected a screen between the lawyers working for group one and bank. However, the court expressed doubts about the screens in general. The court also noted flaws in the law firm's screen. And referred to the fact that a lawyer on the bank team had accessed a group one document in the firm's document management system, printed it out, and then destroyed it. Also a legal assistant now on the bank team had earlier worked on the group one team site checking a memorandum for one hour and reviewing five group one electronic documents for 20 minutes.

 

 Another case, Park Apartments at Fayetteville LP versus Plants, a 2018 case out of Arkansas talks about difficulties in this area. In this case, the plaintiff who was represented by legal aid brought the action against housing corp and management company challenging the liquidated damages in her lease. The lawyer worked at legal aid during the second half of 2016 in the Economic Justice Work Group. The legal aid lawyers represented plaintiff work in the housing work group. In January, 2017, lawyer joined the legal staff of management company. And then in February, plaintiff moved to disqualify the defendant's entire legal staff. The trial court granted the motion. In this opinion, the Arkansas Supreme Court reversed. The evidence was that lawyer did not acquire any knowledge about the case while at legal aid. And the Supreme Court held that mere access to information about this case was not disqualifying. One justice did dissent and said that mere access should be disqualifying. However, there was no discussion of screening. Although I think one could infer that the lawyer is not working on this case for defendants.

 

The last case is Valdez versus Motyka, a Colorado case out of 2021. Here, a law clerk to move to a law firm. And there was a motion to recuse. The court held the filings reflected that the clerk stopped all work on the case after receiving her offer from the law firm. And that firm had erected an effective screen between the former clerk and the case. Another element to an effective screen is having good checklists and risk mitigation forms in place. A lateral hire will of course be investigated as any new hire would be to a firm. One of the most challenging aspects of engaging a lateral hire and the associated clients involves managing the conflicts of interest that may arise as a result of the transition. A hiring firm does not want to conflict out its entire law firm from a representation or a case due to the failure to check for conflicts of interest before bringing the new attorney on board.

 

ABA Formal Opinion number 09-455 entitled, "Disclosure of Conflict when lawyers move between firms," discusses the complexities of sharing information to run conflicts checks at the time an attorney is moving from one law firm to another. The opinions states in part, any disclosure of conflicts information should be no greater than reasonably necessary to accomplish the purpose of detecting and resolving conflicts, and must not compromise the attorney-client privilege or otherwise prejudice a client or former client. A lawyer or a law firm receiving conflicts information may not reveal such information or use it for purposes other than detecting and resolving conflicts of interest. Disclosure should not occur until the moving lawyer and the prospective new law firm have engaged in substantive discussions regarding a possible new association. The hiring firm and the lateral hire must work together to accomplish the goal of performing an appropriate conflicts check while not breaching the attorney-client privilege or Rule 1.6, 1.7, 1.8, 1.9, or 1.10. The risk of failing to perform a proper conflicts check can be disqualification of the lateral hire and the hiring law firm in multiple matters. As suggested in ABA Formal Opinion 09-455, the hiring firm and the lateral hire may want to retain the services of an intermediary lawyer to receive and analyze conflicts information in confidence. This approach should not compromise any privilege, nor frustrate the reasonable expectations of the clients. Both parties and their clients benefit by working together to resolve any potential conflicts of interest before the lateral hire becomes associated with the hiring law firm.

 

Here are some steps that you may want to take to identify potential conflicts of interests when dealing with a lateral hire. First, ask for a current CV so that you can review the background of the transferring lawyer. You will want to look back at least five years or to the time of coming on if it's more than five years ago. Check with the lawyers in your firm or search within your conflict system if it has the data to identify any matters on which the transferring lawyer's previous firm was on the other side. Ask the transferring lawyer for a list of major clients and the matters he or she worked on, but not any confidential information, including the identity of clients that is confidential. And have your firm's conflicts person run these names through your firm's conflicts database. In an interview, ask and not in writing, ask the transferring lawyer if he or she is aware of any potential conflicts of interest due to work done while at his or her previous firm. And lastly, ask the transferring lawyer if he or she sat on any boards. And if so, have your firm's conflict person run this information through your firm's conflicts database, including ideally the name of the entity, the directors, and the officers. It is critical that both the firm and the transferring lawyer take an honest and critical look at any potential conflict situations. Unfortunately, the serious assessment of conflicts often does not occur until the very final stages of the transfer when the lawyer and the firm are committed to making the transfer happen. A strong desire to hire a transferring lawyer should not lessen the need to identify and fully assess potential conflicts. And to take all appropriate steps to deal with them as if necessary. As we've been talking about, this may include erecting confidentiality screens or seeking client consent.

 

In some cases, it may mean that the transferring lawyer cannot be hired, or that the hiring firm may have to send existing clients to another firm. Informing all lawyers and staff about the transfer once the transferring lawyer starts at the new firm will help identify potential conflicts that were not identified in the pre-transfer screening, and will ensure that appropriate confidentiality screens are put in place. You really do need to resist any temptation to overlook or ignore any real or potential conflicts that arise when a lawyer transfers from one firm to another. A failure to deal appropriately with these conflicts really only delays the inevitable. In all likelihood, the firm will have to refer any clients with a conflict to another firm, and it may even face a malpractice claim as a result of the conflict. One area where the requirements of the ethical rules can make a potential lateral move nearly impossible is if a lawyer is looking to join a firm that is on the other side of an ongoing legal matter. An ethics opinion out of North Carolina issued at the end of 2007, or sorry, 2017, explains what the ethical rules actually require in order for such a move to be possible. And it's important to note here that we're only talking about if the lawyer looking to laterally move is looking at moving from one private practice position to another private practice position. As we've talked about, moves into and out of government employment are different and are governed by different rules. North Carolina Formal Ethics Opinion 2016-3 titled, "Negotiating private employment with opposing counsel," lays out the sticking point that make this kind of lateral move more difficult than others. There comes a point in time when any such discussions have become serious enough, even though the deal is not yet done, that both sets of clients have to give their informed consent for the negotiations or the discussions to continue. The risk that mandates this result is the material limitation conflict that arises from the personal interests of the lawyers involved requiring consent under rule 1.7A2.

 

The North Carolina Opinion provides a description as did other opinions and the restatement Third of the law governing lawyers of the moment in time that matters in terms of triggering the need to obtain the client's consent. And that is when the discussions becomes substantive. The opinion also describes impractical terms. What is necessary for each side of the potential lateral discussion to seek out and obtain consent from its respective clients? To obtain the client's informed consent, the job seeking lawyer must explain to the client the current posture of the case, including what if any, additional legal work is required. And whether another firm lawyer is available to take over the representation, should the lawyer seek to withdraw. If the client declines to consent, the job seeking lawyer must either cease the employment negotiations until the client's matter is resolved, or withdraw from the re representation, but only if the withdrawal can be accomplished without material adverse effect on the interest of the clients. Because personal conflicts of interest are not imputed to other lawyers in the firm, another lawyer in the firm may continue to represent the client. Similarly, the hiring law firm must not engage in substantive employment negotiations with opposing counsel, unless its own client consents. If the client does not consent, the firm must cease employment negotiations or withdraw from the representation. Again, like the lawyer wanting to move, the firm may only withdraw if the withdrawal can be accomplished without material adverse effect on the interest of the client.

 

Most lawyers like to think of themselves as being risk averse as a general matter. Interestingly enough, however, when the depths of the details are fully mined, the notion of doing what the North Carolina Opinion indicates is required might seem riskier than saying nothing at all. The situation gets more difficult for some lawyers to work through because it can be viewed as something of a modified prisoner's dilemma situation. Each side of the potential employment discussion may be making its own independent decisions about whether the situation has escalated to a point of seriousness where client notification and client consent is required. And each side has its own thoughts about what is the right answer for each side, stop talking or withdraw if the affected clients won't consent. While the two parties to the discussion might seemingly be in harmony about the potential move otherwise, they may well have starkly different views in terms of balancing how important they value the business of the affected client versus the business that could be gained from the lateral move.

 

As a result, most such moves that actually come to fruition may be the product of one side or the other, not strictly complying with their ethical requirements. Of course, some percentage of the moves that actually work out are the product of following the rules, but maybe not the majority. The majority of them likely either involved matters for clients who are so incredibly important to the economics of the deal, that there is a need to know sooner rather than later whether the impacted clients will consent, or matters for clients who are of such little economic significance that all of the lawyers involved would be happy to jettison the matter if consent is not coming or forthcoming. An even more important factor in play that likely can be dispositive about whether such a move can be made is whether the jurisdiction involved permits the use of non-consensual screening to avoid imputation of a disqualifying conflict.

 

Looking at a case here, Silicon Graphics Incorporated versus ATI Technologies, where a lawyer build 186 hours working for a plaintiff in a patent infringement matter and then changed firms before ultimately landing at the firm that represented the defendants in the same patent infringement case. The potential conflict was identified before the lawyer joined the defense firm. The lawyer there requested a waiver of the conflict from the plaintiff in the patent infringement case, but the plaintiff didn't respond. Then, upon determining that he could likely join the firm, despite the unwaived conflict, the lawyer gave notice to the plaintiff that he was joining the defendant's firm. Both the waiver request and the notice provided details of the anticipated screening procedures that were going to be put into place. The plaintiff and the patent infringement litigation subsequently moved to disqualify the defense firm on the basis that the lawyer who had provided legal services to the plaintiff in the matter, now worked at the firm that was representing the defendants in that same matter. In assessing the motion to disqualify, the Silicon Graphics court reviewed the screen erected by the defense firm under a five element federal law test, and actually found screen adequate. This assessment of the screen mentions several protective measures beyond general statements that the conflict tainted lawyer did not work on, discuss, or share fees from the matter giving rise to the conflict. I

ncluding, first, three weeks before the conflict tainted lawyer joined, the defense firm notified its litigation team in the matter that the conflict tainted lawyer would be joining the firm and would be screened. Second, the defense firm computer system blocked the conflict tainted lawyer from accessing documents related to the patent infringement matter. And the defense firm could demonstrate that the screen lawyer had not in fact accessed any documents. Third, although the conflict tainted lawyer was in the same practice group as the litigation team, the practice group was quite large, more than a 100 lawyers, and the conflict tainted lawyer and litigation team were in different offices. And lastly, the defense firm had arranged that the conflict tainted lawyer would not work on any case with the member of the litigation team, and did not attend any meeting with the team handling the matter including department and partner meetings. Considering all these factors, as well as numerous non-screening relating aspects, such as the nature of the work the lawyer had done, the Silicon Graphics court ultimately denied the plaintiff's motion to disqualify.

 

Another step in screening is education. Even before the law firm considers erecting a screen for specific conflict, it has to provide guidance to the staff. Firms need to ensure that lawyers and staff understand the conflict of interest rules, and when and why a screen may be used. This training may be completed through internal or external CLE programming and distribution of risk management articles and relevant jurisdictional legal ethics opinions and materials. We talked about having checklists or protocols for establishing and monitoring ethical screens. Having these steps in place will make it so you don't omit a crucial step and will serve as evidence that a firm has evaluated its obligations, unbiased by knowledge of any specific conflict, and has prepared what the lawyers deem to be an appropriate response to a potentially disqualifying conflict of interest. And the last step in an effective screen is accountability.

 

The creation of the screen requires actions have consequences. To be effective, the screen must be monitored and documented, and the best practice is to designate one person to handle all of the following. Maintaining and preserving records of the screen, such as the dates on which the law firm erects and dismantles the screen, all documents evidence in the screen, and this information should be preserved as long as the matter continues to be a case in the firm and is later required to demonstrate the adequacy of the screen. Tracking all of the screens being used, monitoring compliance, and if necessary, a testing to compliance with an effectiveness of a particular screen. Sending reminders about the screen. They should be sent to the disqualified staff and the team working on the screened matter on a regular basis, every 60 or 90 days. And every six months or annually, a memorandum should be circulated to all lawyers and staff, warning of communications with the disqualified lawyer about the matter. Reviewing billing and payments to prevent the disqualified attorney from receiving any portion of the fees earned or earned on or directly linked to the screen matter. And also enforcing disciplinary standards and consequences if there has been a determination that an element of the screen has been violated.

 

Lateral hiring is a necessary part of the changing legal landscape, and it can yield mutually beneficial results for both the associates and the law firm. However, lateral hiring as we have seen, is not without risk, and even the most effective screen cannot insulate a law firm from the threat of discipline or disqualification. However, with the adoption of timely screening practices, protocols and procedures, a law firm can minimize its risk.

 

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