I was a corporation's outside counsel years ago. May I now represent a buyer suing that corporation over a contract I never handled?

Plain-English summary

The inquiring attorney served for years as general outside counsel to a corporation for most (but not all) of its legal matters, and later represented an out-of-state division of the corporation; both representations ended by 2018. The corporation then sold the division under an asset purchase agreement, each side represented by its own counsel. In early 2019 the lawyer began representing the buyer of the division in unrelated matters. A dispute arose: the buyer claims the corporation breached its representations and warranties in the asset purchase agreement as to a specific assumed contract, and seeks indemnification. The lawyer states he or she acquired no confidential information about that contract during the prior representations, had no knowledge the contract existed, and did not work on the asset purchase agreement.

The panel analyzed the question under Rule 1.9. Although the interests of the current client (the buyer) and the former client (the corporation) are adverse, a conflict exists only if the buyer's claim is the same as or substantially related to a matter in which the lawyer represented the corporation. Under Comments [2] and [3], matters are substantially related if they involve the same transaction or dispute, or if there is a substantial risk that confidential facts from the prior representation could materially advance the client in the later matter; the panel quoted Rhode Island's "patently clear," "identical," or "essentially the same" formulation from Brito v. Capone.

Addressing the organizational-client "playbook" concern, the panel relied on Comment [3] and ABA Formal Opinion 99-415: general knowledge of an organizational client's policies and practices ordinarily does not preclude a later adverse representation, while knowledge of specific relevant facts does. Because the lawyer gained no specific facts relevant to the buyer's claim, the panel concluded the claim is not substantially related to the prior representations, so representing the buyer is not a conflict under Rule 1.9.

In practice

Under this opinion, adversity to a former client is not enough to create a Rule 1.9 conflict; the matters must also be the same or substantially related. The panel held that where a lawyer previously served as a corporation's general outside counsel but acquired no specific confidential facts relevant to the new dispute, and did not work on the transaction at issue, the new claim is not substantially related. Following Comment [3] and ABA Formal Opinion 99-415, the panel treated general "playbook" familiarity with an organizational client's policies as insufficient, by itself, to establish a substantial relationship.

Common questions

Q: Can a lawyer ever sue a former client?

A: Yes, unless the new matter is the same as or substantially related to the prior representation and the interests are materially adverse. The panel found adversity here but no substantial relationship, so no conflict under Rule 1.9.

Q: Does having been a corporation's longtime general counsel bar later adverse work?

A: Not by itself. The panel, citing Comment [3] and ABA Formal Opinion 99-415, held that general knowledge of an organizational client's policies and practices ordinarily does not preclude a later adverse representation; knowledge of specific relevant facts would.

Q: What made these matters not substantially related?

A: The lawyer acquired no confidential information about the disputed contract, had no knowledge it existed, and did not prepare the asset purchase agreement. The panel concluded the lawyer gained no specific facts relevant to the buyer's claim.

Q: How does Rhode Island define "substantially related"?

A: The panel quoted Brito v. Capone: disqualification is granted only where the relationship between the issues in the prior and present cases is "patently clear" or the issues are "identical" or "essentially the same."

Background and rules framework

The opinion applies Rule 1.9 (Model Rule 1.9, duties to former clients). Rule 1.9(a) bars a lawyer, absent informed written consent, from representing a person in the same or a substantially related matter in which that person's interests are materially adverse to a former client. Comment [2] ties "matter" to the specific facts of a situation or transaction; Comment [3] defines "substantially related" and addresses organizational-client "playbook" knowledge. The panel applied the Rhode Island Supreme Court's construction of Rule 1.9 in Brito v. Capone and the ABA's treatment of former in-house counsel in ABA Formal Opinion 99-415.

Citations and references

Rules of Professional Conduct:

• MR 1.9 (duties to former clients; Comments [2] and [3])
• RI RPC 1.9

Statutes:

• None cited.

Cases:

• Brito v. Capone, 819 A.2d 663 (R.I. 2003), Rule 1.9 substantial-relationship standard.
• American Heritage Agency, Inc. v. Gelinas, 774 A.2d 220 (R.I. 2001), quoted for the substantial-relationship test.
• Government of India v. Cook Industries, Inc., 569 F.2d 737 (2d Cir. 1978), source of the "patently clear"/"identical" formulation.

Other opinions cited:

• ABA Formal Op. 99-415 (1999): general knowledge of a former employer's strategies, policies, or personnel does not by itself establish a substantial relationship under Rule 1.9(a).

See also

• RI EAP Op. 2017-05: No Conflict Adverse to an Affiliate of a Former Firm's Client
• RI EAP Op. 2025-05: May Oppose Former Firm's Client Absent Material Information

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2019-02.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Rhode Island Supreme Court
Ethics Advisory Panel Op. 2019-02
Issued June 18, 2019

FACTS

The inquiring attorney served for many years as "general outside counsel" to a corporation for most but not all of its legal matters. The representation ceased several years ago after which the inquiring attorney was retained by an out-of-state division of the corporation to represent the division in various matters. The representation of the division ceased in 2018 and shortly thereafter, the corporation sold the division pursuant to an asset purchase agreement. The corporation and the buyer of the division (the buyer) were each represented by counsel in the acquisition.

In early 2019, the inquiring attorney commenced representation of the buyer for matters unrelated to the sale of the division. The representation is ongoing. A dispute recently has arisen between the corporation and the buyer. The buyer claims that the corporation breached its representations and warranties in the asset purchase agreement as they pertain to a specific contract that was assumed by the buyer in its purchase of the division. The buyer seeks indemnification from the corporation.

The inquiring attorney states that he/she did not acquire any confidential information concerning the contract that is the subject of the dispute during his/her prior representations of the corporation and of the division. The inquiring attorney states that he/she had no knowledge of the existence of the contract during those previous representations. He/she further states that he/she did not represent the corporation or the division in the preparation of the asset purchase agreement.

ISSUE PRESENTED

The inquiring attorney asks whether he/she has a conflict of interest in the representation of the buyer in its claim against his/her former client, the corporation.

OPINION

It is not a conflict of interest under Rule 1.9 for the inquiring attorney to represent the buyer in its claim against the inquiring attorney's former client, the corporation. The present and former matters are not the same or substantially related.

REASONING

The corporation is a former client of the inquiring attorney. Therefore, Rule 1.9 entitled "Duties to former client" applies. In pertinent part, the rule states as follows:

Rule 1.9. Duties to former client. (a) A lawyer who has formerly represented a client in a matter shall not thereafter 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 gives informed consent, confirmed in writing.

(c) A lawyer who has formerly represented a client in a matter or whose present or former firm has formerly represented a client in a matter shall not thereafter:
(1) use information relating to the representation to the disadvantage of the former client except as these Rules would permit or require with respect to a client, or when the information has become generally known; or
(2) reveal information relating to the representation except as these Rules would permit or require with respect to a client,

The interests of the inquiring attorney's client, the buyer, and of his/her former client, the corporation, are adverse. A conflict of interest would exist if the buyer's claim of breach by the corporation is the same or substantially related to a matter in which he/she represented the corporation.

For purposes of Rule 1.9, a "matter" depends on the facts of a particular situation or transaction. Rule 1.9 Comment [2]. Matters are "substantially related" if they involve the same transaction or legal dispute, or if there exists a substantial risk that confidential facts obtained in a prior representation could materially advance the position of a client in a subsequent matter. Rule 1.9 Comment [3]. "[T]he test for determining whether matters are substantially related has been 'honed in its practical application to grant disqualification only upon a showing that the relationship between the issues in the prior and present cases is 'patently clear' or when the issues are 'identical' or 'essentially the same.' '" Brito v. Capone, 819 A.2d 663, 665 (R.I. 2003) (quoting American Heritage Agency, Inc. v. Gelinas, 774 A.2d 220, 230 (2001) (quoting Government of India v. Cook Industries, Inc. 569 F.2d 737, 739-40 (2d Cir. 1978).)

In Brito v. Capone, 819 A2d 663 (R.I. 2003) the Rhode Island Supreme Court, interpreting Rule 1.9, held that an attorney who had previously represented the plaintiff and one of the defendants in the formation of a limited liability company was not prohibited from thereafter representing the plaintiff in an action alleging that the defendant had defaulted on a promissory note. Id. At 664-65. The Court stated that there was no evidence that the attorney's former representation of the defendant and the current representation of the plaintiff were substantially related. Id. at 665. The Court stated that the defendants did not show that any information counsel received during the formation of the corporation would inure to the disadvantage of the defendant. Id.

A lawyer's former representation of an organizational client over an extended period of time and with respect to most, if not all, of the client's legal matters may raise the concern that any matter in the representation of another client against the former organizational client is "substantially related" to the former representation. Whether "playbook" information - that is, general knowledge and familiarity with an organizational client's policies and procedures – constitutes a substantial relationship between current and prior matters is addressed in Comment [3] to Rule 1.9.

In the case of an organizational client, general knowledge of the client's policies and practices ordinarily will not preclude a subsequent representation; on the other hand, knowledge of specific facts gained in a prior representation that are relevant to the matter in question ordinarily will preclude such a representation.

In ABA Formal Op. 99-415 (1999), the ABA Standing Committee on Ethics and Professional Responsibility discussed the representation by a former in-house counsel which is adverse to the organizational client. The ABA Committee concluded:

The fact that the lawyer had represented his former employer in similar types of matters or that the lawyer had gained a general knowledge of the strategies, policies, or personnel of the former employer is not sufficient by itself to establish a substantial relationship between the current matter and matters in the legal department at the organization for purposes of Rule 1.9(a).

In the instant inquiry, the inquiring attorney's current client, the buyer, claims that the corporation breached the representations and warranties in the asset purchase agreement as they relate to a particular contract that the buyer assumed under the agreement. The inquiring attorney has stated that he/she did not acquire any confidential information relating to the subject contract during the prior representations; he/she had no knowledge of the existence of the contract during those prior representations; and he/she did not participate in the preparation of the asset purchase agreement.

The facts of this inquiry sufficiently demonstrate to the Panel that the inquiring attorney gained no knowledge of specific facts in the prior representation of the corporation which are relevant to the buyer's claim. The Panel concludes that the buyer's claim of breach of the corporation's warranties and representations under the asset purchase agreement is not substantially related to matters in which the inquiring attorney represented the corporation.

Accordingly, the Panel concludes that it is not a conflict of interest under Rule 1.9 for the inquiring attorney to represent the buyer in its claim against the inquiring attorney's former client, the corporation. The present and former matters are not the same or substantially related.