Can one law firm represent clients with differing interests in a corporate deal, or a client adverse to another firm client in a separate matter?

Plain-English summary

The Committee addresses when a firm may, in a corporate transaction, represent a client adverse to another firm client (in the same deal or an unrelated matter). It starts from DR 5-105, which bars representing clients with "differing interests" (broadly defined) unless both consent and a disinterested lawyer would believe the firm can competently represent each; conflicts are imputed firm-wide under DR 5-105(D).

The opinion's central point is that the transactional context is judged more flexibly than litigation, where representing both sides of a case is a near-absolute per se bar. In a deal, the parties' interests are often both "differing" and overlapping (both want the transaction to close), which makes it less likely the lawyer's judgment is impaired. Using a running example (a firm defending ABC Corp. in product-liability suits that is asked to represent a lender making a loan to ABC Corp.), the opinion concludes a disinterested lawyer could ordinarily approve the unrelated-matter adversity. It anchors the analysis in the client's strong right to chosen counsel, citing Levine v. Levine, 56 N.Y.2d 42 (1982).

The opinion sets out factors for the disinterested-lawyer test: (1) the nature of the conflict (predominant common interests and absence of head-to-head lawyer-versus-lawyer negotiation favor consentability; inherently antagonistic roles, like hostile bidder versus target, generally do not); (2) whether confidences in one matter are relevant to the other; (3) the firm's ability to preserve confidences, including screening and information walls offered by the lawyer or demanded by the client; (4) the lawyer's ability to explain, and the client's ability to understand, the foreseeable risks, weighing client sophistication; and (5) whether a lopsided relationship with one client biases the firm. It notes structuring techniques (limiting one side's engagement, separate counsel, departmental separation such as M&A counsel for one party and antitrust counsel for the other) that can make otherwise-direct adversity consentable.

In practice

Under the New York Code as it stood at the time, the opinion holds that transactional conflicts are evaluated case by case under the DR 5-105(C) disinterested-lawyer test, with informed consent, and that the bar is lower than in litigation. It treats sophisticated, separately advised clients as more able to give effective consent, and identifies engagement limits, separate counsel, and information barriers as measures that can reduce adversity enough for consent to be effective. It also recognizes some single-transaction conflicts (directly antagonistic roles, lawyers negotiating against themselves) as non-consentable.

This opinion applies the former New York Code (DR/EC numbering). New York replaced the Code with the Rules of Professional Conduct effective April 1, 2009; DR 5-105 now corresponds to Rule 1.7 (concurrent conflicts) and Rule 1.10 (imputation). Verify the current rule text before relying on any specific requirement.

Common questions

Q: Can one firm represent both sides of a corporate transaction?

A: Sometimes. The opinion concludes it is permissible with informed consent where the parties' interests are generally aligned or not directly adverse and a disinterested lawyer would find the firm can competently represent each, but not where the roles are inherently antagonistic.

Q: Is the standard different from litigation?

A: Yes. The opinion explains that representing both sides of the same litigation is a near-absolute per se bar, while the transactional context is judged more flexibly under the disinterested-lawyer test.

Q: What does the disinterested-lawyer test weigh?

A: The opinion lists the nature of the conflict, whether confidences overlap, the firm's ability to protect confidences (including screening), the client's ability to understand the risks and its sophistication, and the firm's relative relationships with the clients.

Q: Can screening or separate counsel help?

A: The opinion identifies information walls, file segregation, separate legal teams, limited engagements, and separate counsel as measures that can reduce adversity enough to make informed consent effective.

Background and rules framework

The opinion interprets the former New York Code's concurrent-conflict rule DR 5-105, including the DR 5-105(C) disinterested-lawyer exception and the DR 5-105(D) imputation provision, with the Code's broad "differing interests" definition and EC 5-15 and EC 5-16. The corresponding Model Rules are MR 1.7 and MR 1.10. It relies on Levine v. Levine and federal conflicts decisions including Cinema 5, Ltd. v. Cinerama, Inc.

Citations and references

Rules of Professional Conduct:

• MR 1.7 (concurrent conflicts of interest) / NY DR 5-105, DR 5-105(C)
• MR 1.10 (imputation of conflicts) / NY DR 5-105(D)

Cases:

• Levine v. Levine, 56 N.Y.2d 42 (1982), the client's right to chosen counsel and joint representation with full disclosure
• Cinema 5, Ltd. v. Cinerama, Inc., 528 F.2d 1384 (2d Cir. 1976), the heightened litigation standard for concurrent adverse representation

Other opinions cited:

• N.Y. State 611 (1990); N.Y. County 671 (1989); ABA Informal Op. 518 (1962)

See also

• NYC Bar Ethics Op. 2001-3: Limiting Scope to Avoid Conflicts
• NYC Bar Ethics Op. 2004-02: Representing a Corporation and Its Constituents
• ABA Formal Op. 497: Conflicts Involving Materially Adverse Interests

Source

• Landing page: https://www.nycbar.org/reports/formal-opinion-2001-2-conflicts-in-corporate-and-transactional-matters/