Can a law school clinic that once represented a nonprofit later help a rival nonprofit with the same goals apply for tax-exempt status?

Plain-English summary

A law school legal clinic had represented a nonprofit organization. After an internal dispute, dissident members formed a new organization performing the same kinds of functions and asked the clinic to represent it in applying for Section 501(c)(3) tax-exempt status. The clinic asked whether taking that new representation would be a conflict of interest with its former client.

The opinion applies Rule 1.9, which governs duties to former clients. Rule 1.9(a) bars representing a new client in the same or a substantially related matter in which the new client's interests are materially adverse to the former client, absent informed written consent; Rule 1.9(c) bars using or revealing the former client's confidential information. The committee acknowledged that an extensive or continuing relationship with the new organization could later include substantially related, materially adverse matters that would require the former client's consent, but it concluded the limited proposed representation was unlikely to create such a conflict for two reasons.

First, the new representation does not appear substantially related to the prior work: a tax-exemption application generally turns on information about the applicant organization and its conformity with the legal requirements for exempt status, not on confidential information of the former client (and a lawyer's general legal knowledge or research is not the former client's confidential information). Second, the new organization's interests in the IRS application are not materially adverse to the former client's. General enterprise competition between organizations with similar goals is not enough to create a conflict; just as representing competing businesses in unrelated matters is not representing "differing interests" under Rule 1.7, competition between nonprofits does not ordinarily make forming the newer one materially adverse to the older one under Rule 1.9(a). The clinic may therefore undertake the representation without the former client's consent.

In practice

Under this opinion, a former representation does not, by itself, bar a lawyer or clinic from later helping a competitor of the former client. The opinion holds that, under New York's Rule 1.9 as it stood at the time, the test combines three elements: whether the matters are substantially related, whether the new work would use the former client's confidential information, and whether the clients' interests are materially adverse. Here all three pointed the same way, so no consent was needed. The opinion also flags that a broader, ongoing relationship with the new organization could change the analysis if it reaches substantially related and materially adverse matters.

Common questions

Q: Does representing a former client bar a lawyer from later helping a competitor?

A: Not automatically. The opinion concludes that ordinary competition between the former client and the new client is not enough to create a conflict under Rule 1.9; the matters must be substantially related and the interests materially adverse.

Q: Is a tax-exemption application "substantially related" to prior work for a similar nonprofit?

A: Generally no. The opinion concludes the application turns on information about the applicant's own conformity with the requirements for exempt status, not on confidential information of the former client.

Q: Would the clinic's general knowledge from the prior matter create a problem?

A: No. The opinion notes a lawyer's general legal knowledge and research, and general knowledge of an organization's policies, ordinarily are not the former client's protected confidential information under Rule 1.6 and Rule 1.9.

Background and rules framework

The opinion applies New York Rule 1.9 (duties to former clients; cf. Model Rule 1.9): Rule 1.9(a) (no substantially related, materially adverse representation without consent) and Rule 1.9(c) (no using or revealing the former client's confidential information). It uses Comment [3]'s definition of "substantially related," Rule 1.6(a) on what is not confidential information, and Rule 1.7 Comment [6] (competing economic enterprises in unrelated matters; cf. Model Rule 1.7) by analogy.

Citations and references

Rules of Professional Conduct:

• New York RPC 1.9(a), (c) and Comment [3] (duties to former clients; cf. Model Rule 1.9)
• New York RPC 1.6(a) and Comment [4A] (scope of confidential information; cf. Model Rule 1.6)
• New York RPC 1.7(a) and Comment [6] (competing enterprises; cf. Model Rule 1.7)

See also

• NY State Bar Op. 1103: Representing a Competitor of a Former Client
• NY State Bar Op. 1008: Suing an Entity the Firm Once Represented
• NY State Bar Op. 1287: Lawyer as Qui Tam Relator Against a Former Client

Source

• Landing page: https://nysba.org/ethics-opinion-989/