CI-518

July 28, 1980

SYLLABUS

A lawyer for two co-plaintiffs' may not, upon the dismissal of one of them from the pending litigation, name that party as a co-defendant in a related claim arising from the same transaction.

References: CI-220, CI-250, CI-257, CI-354, CI-432, CI-508; C-45, C-70; E.F. Hutton & Co. v. Brown, 305 F. Supp. 371, at 388 (S.D. Tex. 1969); Galbreath Mortage Co. v. Key-Heights-Lowell, Inc., 75 Mich. App. 712, 255 N.W.2d 742 (1977); Park v. Appeal Board of Michigan Sec. Commission, 355 Mich. 103, 94 N.W.2d 407 (1959); Tudryck v. Mutch, 320 Mich. 99, 30 N.W.2d 518 (1948).

TEXT

You represent A, who was injured by the explosion of a battery in a car owned by B, his sister. Since A carries no auto insurance, you applied to B's insurer for payment of benefits under her no-fault policy. An investigator for the insurer requested a statement from B, its insured, and from A, your client. The statement was taken in your firm's offices.

Upon the insurer's refusal to pay benefits, you brought an action on behalf of A. In this action you named B co-plaintiff, assuming that her presence would be necessary to establish B as a third party beneficiary under the terms of the insurance contract. It was agreed that B was not a necessary party, and she was dismissed voluntarily from the action. That action is still pending.

You subsequently initiated a product liability action against the retailer and the manufacture of the battery. In this action you named B as co-defendant, assuming that the retailer or manufacture would raise as a defense the misuse or alteration of the battery by B. In your view, B would then be a necessary party. You state that B was made aware from the outset that she might be made a defendant in a negligence action at some time.

A review of both formal and informal opinions indicates that it indeed would be improper for you to continue to represent A against B in this matter. The basic ground rule was stated in C-7, that states that a lawyer may bring an action against a former client only, "when all business relations between lawyer and client have ceased."

The Committee consistently has taken an even stricter view whenever the proposed action would be based on the same subject matter as the former representation. See C-45, C-70 and CI-220, 250, 257, 354, 432 and 508. CI-250 states:

"It would be improper to represent a client against the lawyer's former client or employer if the claim involved the same subject matter for which the lawyer was formerly retained or if the lawyer obtained factual information on which to proceed in the present case while retained by the former client or employer."

See also CI-354 that repeats the above language almost verbatim.

The only question as to whether CI-250 should govern in the present situation concerns the existence of an attorney-client relationship. Nowhere in your inquiry do you mention a retainer or a fee arrangement between yourself and B. The existence of an attorney-client relationship, however, need not hinge on an actual contract of employment, but be inferred from the circumstances. See E.F. Hutton and Co. v. Brown, 305 F. Supp. 371, at 388 (S.D. Tex. 1969).

In a recent Michigan decision, defendant's knowledge that an attorney was appearing on their behalf was held sufficient to constitute an attorney-client relationship, despite a lack of an express contract. Galbreath Mortage Co. v. Key-Heights-Lowell, Inc., 75 Mich. App. 712, 255 N.W.2d 742 (1977). Defendant's failure to disclaim the representation in a timely manner precluded later disavowal. While not directed to the creation of an attorney-client relationship, a number of other Michigan decisions hold that an attorney's appearance on a given matter is presumed to be authorized absent timely disclaimer. See, Park v. Appeal Board of Michigan Sec. Comm'n, 355 Mich. 103, 94 N.W.2d 407 (1959); Tudryck v. Mutch, 320 Mich. 99, 30 N.W.2d 518 (1948).

That you included B as a co-plaintiff in the first action and that she permitted you thus to act as her representative therefore gives rise to an implied attorney-client relationship. In the present situation, moreover, it is important to avoid even the appearance of professional impropriety (Canon 9). Thus, it would be improper at this time to attempt to deny that relationship. See,Hutton, supra, at 391.

In your inquiry, you attempt to distinguish between the two actions, noting that the first is based on a contract theory, while the second alleges negligence. The distinction, for the purposes of the ethical consideration expressed in CI-250, is immaterial. Both claims arise clearly from the same transaction, the explosion of the battery. One must interpret "subject matter" broadly in order to give it any meaning whatsoever. Thus, in CI-257 it was considered improper for an attorney to represent a union against union members on a strike-related matter where the attorney previously had represented the same union members on claims arising from the same strike.

It is also immaterial whether you were in fact privy to any confidential information given by B. Recently, CI-250 was construed to prohibit per se an attorney's representation of one client against a former client in any matter arising from the same subject matter which underlay the previous representation. See CI-508. In this respect it is irrelevant that the defendant attorney has access to all information that you might have received from B.

Moreover, this Committee has always construed broadly the Canon 4 prohibition against divulgence of a client's confidence and secrets. The approach taken closely parallels that suggested by EC4-4:

"The attorney-client privilege is more limited than the ethical obligation of the lawyer to guard the confidences and secrets of his or her client. This ethical precept, unlike evidentiary privilege, exists without regard to the nature or source of information or the fact that others share the knowledge. . . ."

Previous opinions, as well as that expressed herein may well seem unfair when applied to a particular fact situation. In this case, your initial contact with B came at the request of her insurer. Furthermore, she was added first as a co-plaintiff and then as co-defendant in the belief that her presence was necessary. The overriding concern, however, must be that expressed by Canon 9: "A lawyer should avoid even the appearance of impropriety." Thus, despite the fact that B imparted no actual confidences, there is a great probability of an appearance of impropriety. The opportunity to have gained such confidence is all too apparent.

Although you note that B was made aware that she might be named defendant, that knowledge alone does not obviate the appearance of impropriety. Indeed, the concerns expressed by Canon 9 extend beyond their immediate application to the parties to a particular dispute. Equally important is the need to promote public confidence in the legal profession. See EC9-1. EC9-2 is perhaps even more directly on point:

"Public confidence in law and lawyers may be eroded by irresponsible or improper conduct of a lawyer. On occasion, ethical conduct of a lawyer may appear to laymen to be unethical."

See, also: Hutton, supra, at 394.

It is precisely that appearance that must be avoided in the present situation. An attorney must not avoid only the disclosure of client confidences: He or she must, at the same time, seek to preserve the public's confidence in the legal profession.