RI-46

March 28, 1990

SYLLABUS

A lawyer must decline representation of a client materially adverse to a former client, unless (a) the former client consents to the representation or (b) the former representation and the subsequent representation are not substantially related and confidential information gained in the former representation will not be used to the disadvantage of the former client.

A subsequent representation is substantially related to a former representation if (a) the subject matter of the representation is the same, (b) the factual or legal issues overlap, or (c) there is a likelihood that confidential information obtained in the former representation will have relevance to the subsequent representation.

In the case of doubt about whether a matter is substantially related, or whether confidential information relating to the former representation could be used to the disadvantage of the former client, a lawyer should decline the representation.

References: MRPC 1.9; CI-465, CI-937, CI-1131, CI-1140; Gillett v. Gillett, 269 Mich 364 (1934); General Electric Co. v. Valeron, Inc., 608 F2d 265 (CA6 1979), cert den 445 US 930; Dewey v. R J Reynolds Tobacco Co., 536 A2d 243 (1988).

TEXT

A lawyer represented a husband and the husband's companies in several proceedings for foreclosure of land contracts, which involved issues of execution of the land contracts and the role of a government agency in funding businesses on the property. The matters were resolved by settlement agreement and stipulation for dismissal.

Two years after the conclusion of the foreclosure matters the lawyer has been asked to represent the former client's wife in a divorce action. The husband objects to the representation on the basis that during the foreclosure matters the lawyer was exposed to people with whom husband worked, the husband's way of thinking, and the husband's financial information.

The lawyer asks whether it is ethical for the lawyer to represent the wife.

MRPC 1.9 states:

"A lawyer who has formerly represented a client in a matter shall not thereafter:

"(a) represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after consultation; or

"(b) use information relating to the representation to the disadvantage of the former client except as Rule 1.6 or Rule 3.3 would permit or require with respect to a client or when the information has become generally known."

In The Law of Lawyering, Prentice-Hall, 1989 Supplement, authors Hazard and Hodes address the purpose of ABA Model Rule 1.9 saying:

"Rule 1.9 concerns loyalty to a client in cases of serial representation; its protections are for the benefit of former clients . . . . The idea that lawyers owe duties to ex-clients is neither controversial nor novel. It is an outgrowth of the agency law principle that an agent's duties to his principal continue, in reduced scope, after the agency relationship has been terminated . . . . [Once a lawyer has] accepted a client he loses a certain amount of freedom to take on new matters even when the first representation is over . . . . The principle stated in Rule 1.9 is a necessary extension of the client/lawyer relationship, for otherwise a lawyer might terminate the relationship and use the confidential information of his former client to make himself more valuable to a new (and adverse) client . . . ." page 174.1 et seq.

It is therefore well accepted that the duty of loyalty to the client survives the termination of the relationship.

MRPC 1.9, however, is not an absolute ban against a lawyer representing a client whose interest may be adverse to a former client. The Rule requires that three distinct criteria be met: (1) is the new representation materially adverse to the interest of a former client, (2) is the new representation the "same or substantially related" to the representation of the former client, and (3) could confidential information gained in the former representation be used to the disadvantage of the former client? Even when all three criteria are met, the former client has the option of consenting to the lawyer's adverse representation.

In this inquiry the divorce matter is adverse to the former client, but it is not clear whether the divorce is "substantially related" to the foreclosure proceedings, or whether confidential information gained during the foreclosure representation could be used to the disadvantage of the former client.

In CI-1131, a lawyer who previously represented a husband and wife on a tax matter was allowed to represent one spouse against the other in a subsequent divorce, because the Committee found the two matters "entirely unrelated." See also, CI-465.

In Gillett v. Gillett, 269 Mich 364 (1934), the Supreme Court denied a motion for disqualification in a divorce matter where plaintiff's law firm had represented defendant in a previous divorce, stating:

"[T]here is no showing whatsoever that Plaintiff's counsel could or did betray any confidence. While the two suits were similar in character they bore no relationship whatsoever to one another and the Trial Judge properly denied the Motion." 269 Mich 364 at 368.

In CI-937, a lawyer who advised a client on a lease-back of real estate prior to the client's purchase of a home, may not represent a co-purchaser of the home in an action to establish ownership of the home, since the claims involved the same subject matter. Thus, where the subject matter of the representation is the same, the matters are substantially related.

In CI-1140, a lawyer who previously represented a manufacturer in a personal injury claim arising out of the use of various playground equipment could not later represent a new client in a personal injury matter involving the manufacturer's equipment, because the factual as well as the legal issues in the new matter were substantially related to the former matter. The Committee added: "If the former subject matter is in any way relevant to the present case, the former client must consent before representation is continued." Therefore, where the factual or legal issues overlap, the matters are substantially related. See also, Dewey v. R J Reynolds Tobacco Co, 536 A2d 243 (1988), where a lawyer who performed general corporate work for the former client, but was privy to communications concerning defense strategy relevant to the subsequent products liability litigation, was disqualified.

In addition to the question of whether the representations are "substantially related," MRPC 1.9(b) prohibits a lawyer from using confidences and secrets of the former client to the former client's disadvantage. The fact that the lawyer has once served a client does not preclude the lawyer from using generally known information about that client when the lawyer represents another client.

If there is a likelihood that information obtained in the former representation will have relevance to the subsequent representation, the matters are substantially related. Examples include, for instance, whether it is relevant in representing a subsequent client on a custody matter to raise information about the criminal record of the former client/adverse party; whether financial information gained in representing a former client is relevant to negotiating a property settlement for a subsequent divorce client; whether representation of a former client on transfers and sale of real property is relevant to subsequent representation concerning marital share, rights of heirs and beneficiaries, or taxes.

"[I]t might be said that the divorce is 'related' to the prior business matter after all. A question might arise, for example, about the assets of the former business, and how the proceeds of the sale were distributed. It could also have been that [the business] representation led [the lawyer] to become familiar with the businessman's personal finances at that time. If the financial information would be relevant in the divorce matter, a 'substantial relationship' exists between the two matters." Hazard and Hodes, at p. 183.

In the case of doubt about whether a matter is substantially related, or whether confidential information relating to the former representation could be used to the disadvantage of the former client, a lawyer should decline the representation, General Electric Co. v. Valeron, Inc., 608 F2d 265 (CA6 1979), cert den 445 US 930.

"Disqualification has very serious consequences for both client and lawyer. The client has to obtain new counsel who must be brought 'up to speed.' New counsel may be barred from using the work product of disqualified counsel, in order to 'cure' the taint, if the work product reflects confidential information . . . . The disqualified firm suffers not only embarrassment and possible destruction of its relationship with the client but also financial losses. It usually must bear the cost of effecting the transfer of representation. Furthermore, since standard doctrine holds that a lawyer may not collect fees for ethically improper representation, the lawyer forfeits the right to compensation for work already performed . . . ." Hazard and Hodes, at 177.

Therefore, the lawyer must decline representation of the wife unless the husband consents to the representation, or there is no overlap between the factual or legal issues of the former and subsequent representations and the confidential information obtained in the former representation will have no relevance to the subsequent representation.