November/December 1998
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November/December 1998 |
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Classifieds |
Ethical Walls, Migrating Lawyers,
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Suggested links: The American Bar Association's "Ethics 2000" home page. A 1994 order by Judge Fitzpatrick in Minnesota's tobacco litigation, denying a motion to disqualify, on the condition that the firms maintain an ethical wall. A review of fictional stories illustrating conflicts of interest from a client's point of view. Analysis of ethical walls under the law of four countries, with particular focus on international accounting services. |
Imagine for a moment that instead of being the lawyer, you are the client. Imagine that in the course of your business, you have retained a specific lawyer from a large firm for a number of years. Over the course of your relationship, the lawyer has represented your interests in several disputes. Your lawyer has become very familiar with your methods of operation, your financial condition, and with the contracts you use in your business. Recently your lawyer has been drafting documents, giving advice, and attending settlement conferences concerning a significant dispute with Mammoth Construction. Millions of dollars are at stake and you are counting on your lawyer to resolve the matter in your best interests. Now imagine that your lawyer switches firms while the dispute is still going on. You decide to stay with the same large firm. A few weeks later, you receive a letter from counsel for Mammoth Construction. Much to your surprise, you see your former lawyer’s name on the letterhead. Your former lawyer is a new partner at the firm representing Mammoth Construction! She moved to your adversary’s firm because of a more lucrative offer for her "book of business." Feeling a bit nervous that your former lawyer, who has an abundance of confidential information about you, is now "camping with the enemy," you call her to request that her firm discontinue representation of Mammoth Construction. Your former lawyer replies, "Don’t worry, my new firm set up an ethical wall to separate me in every way from your case, so as to safeguard your confidential information." You respond, "What’s an ethical wall? How will it ensure that you don’t accidentally or purposely reveal information to your new partners about this dispute?" "Ethical walls are a safe way to protect your information," she replies. "My new firm will physically separate me from the lawyers working on the case against you, the lawyers involved with the case have been instructed not to talk to me about the case, and I won’t have any access to the files." This scenario raises a number of troubling questions, among them:
These are the types of questions that courts around the nation are facing today, and that Minnesota should reconsider. |
Neil W. Hamilton is Trustees Professor of Regulatory Policy at the William Mitchell College of Law. He has been teaching professional ethics at the law school since 1988.
Kevin R. Coan is research assistant to Prof. Hamilton at William Mitchell College of Law. Beginning in the summer of 1999 he will be an associate with the law firm of Parsinen, Kaplan, Levy, Rosberg & Gotlieb. © 1998 by Neil Hamilton |
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"Substantial lawyer mobility creates the conflicts
that ethical walls are intended to alleviate."
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It is a critical time to analyze and weigh the arguments for and against the use of ethical walls. First, lawyer mobility has been on the rise over the last 25 years to such an extent that bidding by law firms for lawyers or groups of lawyers with substantial "books of business" is common, and will probably grow more common.1 Substantial lawyer mobility creates the conflicts that ethical walls are intended to alleviate. Lawyer mobility also interferes with a client’s right to counsel of her choice, as the conflicts rules may conflict out the lawyer of her choosing. Just as lawyers are moving more freely between firms, law firms are growing rapidly and large firms are citing increasing competition from accountants, among other reasons, to argue that we must accept the use of ethical walls.2 As firms continue to grow, the conflicts rules become one of the most important limitations on growth, and ethical walls could mitigate the effect of the conflicts rules.3 The second reason why it is a critical time to examine these issues is that both the American Law Institute ("ALI") and the American Bar Association ("ABA") are presently evaluating this area. The ALI recently adopted Section 204 of the Restatement (Third) of the Law Governing Lawyers, a section that takes a more permissive stance on the use of ethical walls than the ABA Model Rules of Professional Conduct or the Minnesota Rules of Professional Conduct ("MRPC").4 Section 204 allows the use of ethical walls in a case where a lawyer with confidential information about Client A "that is unlikely to be significant in the subsequent matter" moves to a firm that represents Client A’s adversary. Section 204 would also apparently allow the use of an ethical wall when there has been no lawyer mobility at all (i.e. when a firm simply switches sides on an issue).5 The ABA is also evaluating this area, creating a new Committee on the Evaluation of the Rules of Professional Conduct, or "Ethics 2000." In announcing the creation of the committee, ABA President N. Lee Cooper stated that the committee’s evaluation is necessary in light of "changes in the legal profession, such as the increased size and mobility of law firms . . .."6 Among other things, the committee will be looking at whether the new provisions of the Restatement (Third) of the Law Governing Lawyers suggest "enhancements to the Model Rules."7 The committee has put the evaluation of confidentiality and conflicts at the top of their work list.8 A third reason that the issues surrounding the use of ethical walls have gained importance is the sagging perception of lawyers and the legal profession among both the public and the profession. Public perception of the profession is at an all time low. There is a strong public perception that lawyers lack caring and compassion, that lawyers have poor ethical practices and standards, that lawyers are greedy, and that lawyer advertising is distasteful.9 There is also a common perception that lawyers and the legal profession are simply a plague on society.10 A 1997 Harris poll indicated that lawyers are experiencing a dramatic decline in their "prestige," falling faster than any other profession. In 1977, 36 percent of the public viewed the law as a "very prestigious" profession, while in 1997, only 19 percent of the public held this view. "This places law firms at the bottom of the institutions on the list." It is "the lowest number recorded for any institution in over 30 years."11 The profession itself has recognized the trend, and many are of the view that "the venerable profession of law is in need of a mass transfusion of public respect.12 Whether we choose to allow ethical walls or not will affect the public’s perception of the profession. The public will be skeptical of ethical walls. Finally, it is a critical time to reexamine ethical walls because there is no real consensus on the issue; most jurisdictions have not yet reached the issue. Our survey of all federal courts of appeals, state supreme and appellate courts, and state ethics rules indicates that while 13 jurisdictions allow ethical walls for a migrating attorney, eight jurisdictions expressly disallow ethical walls. The remaining jurisdictions are undecided.13 |
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The most frequently cited Minnesota case involving a conflict of interest with a former client and the use of an ethical wall was decided in 1983, two years before the adoption of the MRPC. In the Code of Professional Responsibility in effect at that time, there was no counterpart to MRPC Rule 1.9 relating to former client conflicts. This has led to confusion about how Minnesota case law fits with the MRPC. In Jenson v. Touche Ross & Co.,14 plaintiffs brought an action in federal court against a coin dealer and his auditor, Touche Ross, including claims that the auditor failed to disclose ongoing investigations. While the federal action was pending, a companion case was also filed against Touche Ross in state court. Touche Ross was represented in both cases by the Oppenheimer law firm. After settlement of the federal case against the coin dealer, the coin dealer entered involuntary bankruptcy proceedings in 1977, and plaintiffs retained James Levy, a sole practitioner, for legal assistance in the bankruptcy issues from August 1977 until July 1979. In November 1979, Levy joined the Oppenheimer firm "of counsel," and plaintiffs moved to disqualify the Oppenheimer firm from the continuing state litigation against Touche Ross, alleging violation of Canons 4 (protecting client confidences), 5 (independent professional judgment), and 9 (avoiding the appearance of impropriety) of the Code of Professional Responsibility. Justice Simonett, writing for the Court, noted that as the law relating to conflicts of interest with a former client first developed, "disqualification was found quite readily since the integrity of the profession in the eyes of the public was paramount, and often the mere appearance of impropriety was enough. In more recent years, attention has also been given to countervailing interests, having in mind the organization and structure of today's law practice and the mobility of lawyers among firms."15 Justice Simonett made clear that he was applying the Canons of the Code of Professional Responsibility to the case, writing that
Applying this framework to the facts, the Court concluded that "the claim by plaintiff's counsel, denied by Mr. Levy, that matters beyond the bankruptcy retainer were discussed, including future strategies against Touche Ross," created at least arguably a substantial overlap or relationship between Mr. Levy's successive representations . . .."17 Second, without explanation, the Court concluded that the trial court found, on an adequate factual basis, that the presumption that Mr. Levy conveyed these confidences to "his present Oppenheimer affiliates" was rebutted. Third, the Court considered several "competing equities" to be relevant:
Justice Simonett in the Jenson decision applied the Code of Professional Responsibility to the issue of conflict of interest with a former client. There was no counterpart to Rule 1.9 in the Code of Professional Responsibility. Representation adverse to a former client was dealt with by implication under the rubric of Canons 9, 4, and 5.18 Rule 1.9 now deals specifically with representation adverse to a former client. Rule 1.10(b) deals specifically with the Jenson court's concern with lawyer mobility. These rules codify much of Justice Simonett's analysis. The"substantially related" test is codified in Rule 1.9(a). Rule 1.9(a) also codifies the irrebuttable presumption that if the "substantially related" test is met, the attorney received confidences from the former client. Rule 1.10(a) imputes this disqualification to lawyers associated in a firm. This is an irrebuttable presumption; however, Rule 1.10(b), recognizing the Jenson court's concern with mobility, permits a firm that a new lawyer joins to rebut the imputation by showing that the new lawyer had acquired no information about the former firm's client protected by Rule 1.6. This is narrower than Justice Simonett's interpretation of the Canons, which may be interpreted to permit a lawyer who personally has confidential information meeting the "substantially related" test to change firms but to prove that confidences were not conveyed to the attorney's new affiliates. Rule 1.10, in contrast to Rules 1.11 (former government attorneys) and 1.12 (former judges, arbitrators or law clerks), also does not recognize ethical walls in the context of private lawyers' movement from firm to firm. Rules 1.9, 1.10(a), and 1.10(b) do not by their terms recognize a "competing equities" analysis, although several of the considerations listed by Justice Simonett would be relevant to a determination of whether the Oppenheimer firm rebutted the imputation under Rule 1.10(b). The Minnesota Supreme Court has considered the "substantially related" test again in two later cases. Production Credit Ass'n v. Buckantin,19 involved a context where a lawyer moved from a federal credit bank to a private firm and later brought an action against the bank. The Court adopted and applied the "substantially related" test of Rule 1.9(a) and the supporting interpretive comment to the rule. This interpretation of 1.9(a) is consistent with the first step in the Jenson framework. The Minnesota Supreme Court again considered the substantial relationship test in Buysse v. Baumann-Furrie & Co.20 The analysis of the applicable rules of professional conduct is confused. St. Paul Fire and Marine moved to disqualify the opposing law firm on the basis of concurrent representation under Rule 1.7. The trial court ruled that the conflict of interest issue became moot when the law firm withdrew from the representation, and the Supreme Court concurred. However, because the law firm again appeared in filing a joint brief on appeal, the Court continued using the Jenson framework applicable to former client conflicts. The Court made no reference to Rule 1.9, and analyzed all three steps of the Jenson framework. Applying the first step, the Court found that a current representation against an insured of a carrier does not necessarily have a disqualifying overlap with an earlier representation of the carrier involving insurance defense. Applying the second step of Jenson, the Court found that
Therefore the Court moves to the third step of weighing the competing equities. The application of steps 2 and 3 of the Jenson framework instead of the Rule 1.9 and Rule 1.10(a) framework creates much confusion. If the matters are "substantially related" under Rule 1.9, then the conflict is imputed to all other lawyers in the same firm under Rule 1.10(a). Rule 1.10(a) does not permit a rebuttal of the imputation. Rule 1.10(b) would permit a rebuttal of the imputation in cases involving mobility if the law firm demonstrates that the new lawyer had no confidential information that is material to the matter.22 The analysis in these cases is not a deliberate considered rejection of the framework of Rules 1.9 and 1.10, rather the analysis demonstrates confusion in applying the Jenson framework based on interpretation of the Code of Professional Responsibility which had no counterpart to Rule 1.9 or 1.10(b). With respect to former client conflicts, the Court could clarify the analysis by focusing on Rules 1.9 and 1.10 rather than the old Jenson framework. Clarifying the relationship of Jenson to Rule 1.10 is particularly important on the permissibility of ethical walls to address conflicts issues. While the facts of Jenson involved a migrating lawyer, the facts of Buysse did not, yet the Court applied the Jenson framework. Presumably, had an ethical wall been erected in Buysse, the Court would have considered it in weighing the equities. Rule 1.10 does not permit ethical walls to address conflicts issues in situations involving mobility, let alone where there is no mobility involved. No other jurisdiction permits ethical walls to be used in situations where there is no lawyer mobility.23 The permissive use of ethical walls in both mobility and non-mobility situations will render Rule 1.10 meaningless with regard to former client conflicts. |
"Whether
we choose to allow ethical walls or not will affect the public's perception
of the profession."
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"Twenty-five years ago, both courts and the
ethics rules focused on protecting the interests of the former client of
the migrating lawyer based on the cornerstone principle of client confidentiality,
and did not recognize ethical walls."
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The Court in Jenson did not analyze the policy justifications for and against ethical walls, finding only that a "Chinese wall . . . does not offend the appearance of professional proprieties under Canon 9," and citing Kesselhaut v. United States, a 1977 Court of Claims case, and Woods v. Covington County Bank, a 1976 Fifth Circuit case.24 Of course, Canon 9 and its general language prohibiting professional impropriety are now replaced by the specific language of Minnesota Rules of Professional Conduct Rules 1.9 and 1.10. Kesselhaut v. United States is a case involving a former government lawyer moving to private practice, where the policy justifications in favor of an ethical wall are greater.25 Rule 1.11 permits an ethical wall in such situations. Like Kesselhaut, Woods v. Covington County Bank also involved a migrating government lawyer; however, the issue of ethical walls was never addressed, with the court focusing almost exclusively on a Canon 9 analysis of whether a former government lawyer should be disqualified.26 In a forthcoming Hofstra Law Review article, "Are We a Profession or Merely a Business?: The Erosion of the Conflicts Rules Through the Increased Use of Ethical Walls," we analyze in detail the policy justifications for and against ethical walls. The line of cases accepting ethical walls illustrates a major shift in focus on the part of some courts. Twenty-five years ago, both courts and the ethics rules focused on protecting the interests of the former client of the migrating lawyer based on the cornerstone principle of client confidentiality, and did not recognize ethical walls. ABA Formal Opinion 342 in 1975 created an exception validating ethical walls for the former government lawyer moving into a private firm. The primary reason was to protect the former client, the government, so that it could recruit the brightest law graduates. This benefit would offset the costs of the government’s potential loss of confidentiality. A secondary reason was to protect the lawyer choice rights of the clients of the firm into which the government lawyer migrated. Without an ethical wall, the lawyers of these clients would be subject to secondary disqualification. Starting in 1983, what had been a secondary reason for the government attorney exception became a primary reason for some courts to recognize ethical walls for migrating private attorneys. The focus of the line of cases allowing ethical walls in these circumstances has been first, the facilitation of lawyer mobility and second, protecting the lawyer choice interest of the clients of the firm to which a personally disqualified lawyer has migrated. Courts permitting ethical walls should undertake a more careful analysis. First, and most important, courts should remember that client confidentiality is a cornerstone principle of the adversary system, and that lawyer choice rights of clients have been a secondary principle. For example, the ethics rules recognize that the client’s choice of a lawyer is limited by ability to pay, and the rules do not require a lawyer to take a particular client. Second, the government lawyer exception is based principally on a compensating benefit to the former client, the government, which allegedly should now be able to hire the brightest law graduates. Neither the evidence available nor common sense supports the conclusion that the government must risk its confidentiality to recruit excellent counsel. Indeed the evidence indicates that government might improve the quality of counsel by reducing, rather than facilitating lawyer turnover. Third, courts should analyze more carefully how the original government attorney exception, based principally on an alleged compensating benefit to the former client, was extended to migrating private attorneys based on the facilitation of lawyer mobility and lawyer choice right of clients of the firm to which the lawyer has migrated. The lawyers of these clients face a potential secondary disqualification because of lawyer mobility. The problem is created and driven by the increasing movement of lawyers among firms bidding for attractive books of business. There is no compensating benefit to the former client. The critical elements to balance are the cornerstone principle of client confidentiality against the facilitation of movement of lawyers among firms bidding for attractive books of business. The second should not trump the first. A fourth consideration is the possibility of a remedy for the harm caused to former or current clients. The existing client whose firm is disqualified because the firm recruited a migrating lawyer who created a former client conflict has a malpractice claim to compensate for damages. The former client whose confidential information is at risk has no means to ensure that confidential information is not available to the lawyers prosecuting a matter against the former client. The former client whose confidences are compromised has almost no chance either to discover the wrong or to prove damages. A fifth consideration is the public’s confidence and trust in the adversary system of justice and the profession. Lawyers assure clients of absolute confidentiality. However, the former client’s inability to ensure that confidences are protected, combined with the firm’s interests both as advocate for the current client and in its own financial gain, are factors that undermine the former client’s trust, and in turn the public’s trust. A sixth and critical consideration to analyze is how the idea that ethical walls were necessary because government lawyers’ self-interest required permission for them to pursue all potential private firm bidders opened the door to the same argument that ethical walls are necessary because private lawyers’ self-interest requires permission for them to pursue all potential private firm bidders. As lawyers’ commercial self-interest and the idea that law is a business have gained ground over the past 25 years, some judges are also accepting ethical walls for the migrating private lawyer. Professor Monroe Freedman calls this the "screening scam" to increase lawyers’ job opportunities.27 The major factor that has tipped the balance toward permitting ethical walls is the growing perception that the practice of law is a business, and that lawyer mobility is a reality of the market that must be accommodated. This is a fundamental shift away from the conception that the practice of law is a profession shaped principally by its commitment to a transcendental purpose: justice. That commitment significantly restrains the pursuit of personal gain. A substantial segment of the bar and the judiciary is not attending adequately to the transcendental purpose of the profession. In a market economy, when a profession does not attend adequately to its transcendental purpose, money will sweep the field as a determiner of value. The professional relationship will be reduced to an economic exchange between a service provider and a customer for profit. The courts and the bar must support the transcendental purpose of the legal profession: justice. If we focus on the practice of law as a profession, then the analysis of ethical walls for migrating lawyers is not a "delicate balance" in the words of the Seventh Circuit’s decision in Schiessle v. Stephens.28 In analyzing the policy justification for ethical walls, a court should not consider lawyer self-interest in maximizing employment opportunities and bidding for books of business. Client confidentiality as a fundamental principle of the adversary system, public confidence in the justice system, and the discouragement of switching sides then trump the client choice problem created by the migrating lawyer. It will take time for the profession, the courts, and the law schools
"to regenerate the ideal of the law as public profession with large
public responsibilities" where self-interest must be curbed. Much
is at stake. With each shift toward self-interest and personal gain, the
bar undermines the compact with society where the society has granted
exceptional rights of self-governance in return for the profession’s
agreement to curb self-interested behavior to promote justice. The Minnesota
courts should reconsider the issue of ethical walls for migrating private
lawyers based on a thorough analysis of the Rules of Professional Conduct
and the relevant policies. Prohibiting ethical walls for migrating lawyers
is a significant step to preserve the social compact. |
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1 Robert W. Hillman, Hillman on Lawyer Mobility §1.1 (Release 3, Apr. 1997) (Back to text) 2 See John Gibeau, "Squeeze Play," A.B.A. J., Feb. 1998 at 46. (Back) 3 See Harvey Berkman, "Sidelined by Client Conflicts," Nat’l L. J., June 2, 1997 at AI 1, AI 6. (Back) 4 See Restatement (Third) of the Law Governing Lawyers §204 (1998). (Back) 5 Section 204 does not expressly state that lawyer mobility is required for the implementation of an ethical wall, however it does not appear to limit its application to cases where a lawyer has moved from one firm to another. (Back) 6 "ABA Establishes ‘Ethics 2000’ to Evaluate Legal Ethics" (July 1997 Press Release) (Back) 7 James Podgers, "Model Rules Get the Once-over," A.B.A. J., Dec. 1997 at 90. (Back) 8 Id. (Back) 9 Gary Hengstler, "Vox Populi: The Public Perception of Lawyers; ABA Poll," A.B.A. J., Sept. 1993, at 60, 62. (Back) 10 Geoffrey C. Hazard, "The Future of Legal Ethics," 100 Yale L. J. 1239, 1239-40 (1991). (Back) 11 Humphrey Taylor, "Lawyers and Law Firms Plumb the Depths of Public Opinion," Harris Poll #37 (Aug. 11, 1997). (Back) 12 In re Petition of Birmingham, 866 P.2d 1150 (Nev. 1994) (Steffan, J. and Rose, C.J. dissenting). (Back) 13 Neil W. Hamilton and Kevin R. Coan, "Are We a Profession or Merely a Business: The Erosion of the Conflicts Rules Through the Increased Use of Ethical Walls," forthcoming in 27 Hofstra L. Rev. (Back) 14 335 N.W.2d 720 (Minn. 1983). (Back) 15 335 N.W.2d at 731. (Back) 16 335 N.W.2d at 731. (Back) 17 335 N.W.2d at 732. (Back) 18 335 N.W.2d at 732. (Back) 19 See "Model Code Comparison, Model Rule 1.9." (Back) 20 410 N.W.2d 820 (Minn. 1987). (Back) 21 448 N.W.2d 865 (Minn. 1989). (Back) 22 448 N.W.2d at 869. See also Matter of Trust Created by Hill, 449 N.W.2d 475, 491-93 (Minn. App. 1993). (Back) 23 But see Analytica v. NPD Research, Inc., 708 F.2d 1263 (7th Cir. 1983)(Coffey, J. dissenting). Additionally, Restatement (Third) of the Law Governing Lawyers §204 (1998) does not expressly state that lawyer mobility is required for the implementation of an ethical wall. (Back) 24 335 N.W.2d at 732. (Back) 25 555 F.2d 791, 793 (Ct. Cl. 1977). (Back) 26 537 F.2d 804, 810 (5th Cir. 1976). (Back) 27 Monroe Freedman, "The Ethical Illusion of Screening," Legal Times (Nov. 20, 1995) at 24-25. (Back) 28 Schiessle v. Stephens, 717 F.2d 417, 420 (7th 1983). (Back)
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