Can a law firm sue a company it did transactional work for years ago on behalf of a personal-injury plaintiff, when the firm also represents a bank that lent the company money?

Plain-English summary

A law firm with three partners asked whether it could represent a longtime client, Farmer X, in a personal-injury action against Corporation. One partner, Partner A, had done transactional work for Corporation and its majority shareholders from 1996 through 2002 (gravel leases, deeds, a buy-sell agreement) but nothing since. The firm never formally ended that relationship. Partner A was also a shareholder, director, and counsel for a local Bank, and Corporation was a borrower of the Bank that had pledged its assets as loan collateral. The firm expected damages to exceed Corporation's insurance limits, so Corporation's assets would be pursued.

The committee first applied the imputation rule, Rule 1.10(a): if any one lawyer in the firm would be barred, every lawyer is barred, so screening Partner A or using a different office would not cure a real conflict. It then asked whether Corporation was a former client. Treating that as a fact-dependent question that turns on the client's reasonable perception, the committee concluded that after more than two years of no contact it would be unreasonable for Corporation to consider itself a current client. Because the new personal-injury suit was neither the same nor substantially related to the firm's past transactional work, Rule 1.9 did not bar the representation of Farmer X against Corporation.

The Bank presented a different problem. The committee found the interests of Farmer X and the Bank potentially adverse: if Farmer X won a judgment exceeding insurance limits, both he and the Bank would become creditors competing for Corporation's assets. Under Rule 1.7(c), the firm therefore had to decide for itself that neither representation would be adversely affected and then obtain written informed consent from both Farmer X and the Bank. If either declined consent, or if an actual conflict later developed, the firm could not proceed (and would have to withdraw from both adverse matters). On the use of Corporation's information, the committee held Rule 1.9 was not implicated, but reminded the firm that Rule 1.6 still protects a former client's confidential information from disclosure.

In practice

This opinion applies the version of North Dakota's Rules of Professional Conduct in force in 2005, which North Dakota materially revised effective August 1, 2006; the analysis reflects the earlier rule. Under that rule, the committee held that whether a transactional client has become a "former" client is fact-dependent and turns in part on the client's reasonable perception, and that more than two years without contact made it unreasonable to treat the company as current. The committee held that a firm may take a new matter adverse to a former client when the new matter is not the same as or substantially related to the prior work, and that where a concurrent client (the Bank) is only potentially adverse, the firm must satisfy Rule 1.7(c) by making its own no-adverse-effect determination and obtaining written informed consent from each affected client before proceeding.

Common questions

Q: When does a transactional client become a "former" client?

A: The committee said there is no fixed time period; the question is fact-dependent and turns in part on the client's reasonable perception of its status. Here, more than two years with no communication made it unreasonable for the company to consider itself a current client.

Q: Does suing a former client require that client's consent?

A: Not under Rule 1.9 if the new matter is neither the same as nor substantially related to the prior representation. The committee found the personal-injury suit unrelated to the firm's past transactional work for the company, so Rule 1.9 did not bar it.

Q: What did the firm have to do about the bank it also represented?

A: Because the plaintiff and the bank were potentially adverse (both could become creditors of the company), the committee held the firm had to comply with Rule 1.7(c): decide its own representation would not be adversely affected, then obtain written informed consent from both the plaintiff and the bank before taking the case.

Q: Could the firm rely on screening one partner instead of getting consent?

A: No. Under the imputation rule (Rule 1.10(a)), if one lawyer in the firm would be barred, all are; the committee said it was immaterial that the conflicted partner worked from a different office or would be screened.

Background and rules framework

The opinion interprets North Dakota Rules of Professional Conduct 1.10 (Model Rule 1.10, imputed disqualification), 1.9 (Model Rule 1.9, duties to former clients), 1.7 (Model Rule 1.7, concurrent conflicts), and 1.6 (Model Rule 1.6, confidentiality) as they stood in 2005. The version of Rule 1.7 the committee applied is structured by paragraphs (a) through (c), with paragraph (c) allowing representation despite a potential adverse effect only if the lawyer reasonably believes the representation will not be adversely affected and the client consents after consultation; North Dakota revised its Rules of Professional Conduct effective August 1, 2006, so the rule text quoted in the opinion reflects the earlier version.

The opinion is issued under North Dakota Rule for Lawyer Discipline 1.2(B), the safe-harbor provision protecting good-faith reliance on a written ethics-committee opinion.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.10 / N.D.R. Prof. Conduct 1.10 (imputed disqualification)
• Model Rule 1.9 / N.D.R. Prof. Conduct 1.9 (duties to former clients)
• Model Rule 1.7 / N.D.R. Prof. Conduct 1.7 (concurrent conflicts of interest)
• Model Rule 1.6 / N.D.R. Prof. Conduct 1.6 (confidentiality of information)
• N.D.R. Lawyer Discipline 1.2(B) (safe harbor for reliance on a committee opinion)

Statutes:

• N.D.C.C. Chapter 6-08.1 (privacy of bank customer information)

Other opinions cited:

• SBAND Opinion 97-04 (former-client conflict analysis)
• Rhode Island Ethics Op. 2001-08 (when a client becomes a former client), via ABA/BNA Lawyers' Manual on Professional Conduct

See also

• SBAND Ethics Op. 02-04: Former-Client Conflict in a Corporate Family
• SBAND Ethics Op. 03-01: Former-Client Conflict in a Derivative Action
• ABA Formal Op. 497: Materially Adverse Conflicts

Source

• Landing page: https://www.sband.org/page/ethics_opinions
• Original PDF: https://cdn.ymaws.com/www.sband.org/resource/resmgr/docs/for_lawyers/opinion_05-01.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

STATE BAR ASSOCIATION OF NORTH DAKOTA
ETHICS COMMITTEE

OPINION NO. 05-01
February 2, 2005

The Ethics Committee was asked whether the requesting law firm may represent Farmer
X in a personal injury action against Corporation. Law Firm performed various legal services for
Corporation over the years from 1996 through 2002, but not since then. Corporation is also a
borrower from Bank which is a also a client of Law Finn.

Background Provided by Requestor

Requestor, Law Firm, has three general partners and maintains offices in two towns.
Partner A lives and practices in one community, while Partner B and Partner C live and practice
in the other.

As a result of a vehicle collision Partner C has been asked to represent Farmer X in a
personal injury action against Corporation. Farmer X is a longstanding client of Partner C. The
liability of Corporation is not at issue. Law Firm expects damages to exceed Corporation’s
insurance policy limits if the personal injury action goes to trial. Corporation’s assets would be
pursued to satisfy a judgment.

Between 1992 and 2002, Partner A, a lawyer who does not participate in litigation,
performed legal services for Corporation and its two majority shareholders. These services
included preparing gravel leases, deeds for the sale and purchase of real property and a buy sell
agreement. Partner A obtained no financial information at the time and has no financial
information in his files. Partner A has not performed legal services for Corporation or its
majority shareholders since 2002. However, Law Firm did not formally terminate its client
relationship with Corporation and assumes without the Law Firm’s involvement in the personal
injury action, Corporation “might have” again contacted Partner A in the future to again perform
transactional services. Partner A will not personally participate in either the prosecution or
defense of the personal injury action and has so advised Corporation in writing.

Partner A is also a shareholder, director, and legal counsel for a loca] Bank. Corporation
is a borrower from Bank and has pledged its assets as collateral to secure repayment of the Bank
loans.' Partner A has advised Bank that he will excuse himself from any Bank board of director
discussions concerning Corporation or its shareholders. If the personal injury action is not
settled, Law Firm intends to hire other counsel to handle the execution of the judgment.

Question Presented

Law Firm asks whether it may represent Farmer X in his personal injury action against
Corporation.

' Since Law Firm has no financial information of Corporation in its files, it is not clear how Law Firm obtained this
information about Corporation.

Discussion

The situation which has been presented requires an analysis of Law Firm’s
responsibilities to Farmer X, Bank, and Corporation.

A client is a client of a law firm as well as the individual lawyer who performs legal
services for the client. Conflicts of interest which preclude representation of a client or potential
client by an individual lawyer within a law firm are imputed to all lawyers in the firm under
Rule 1.10(a) N.D.R.Prof.Conduct which states: “Lawyers associated in a firm may not
knowingly represent a client when any one of them practicing along would be prohibited from
doing so by these rules, except as provided by Rule 1.11 or Rule 1.12.” The exceptions do not
apply here. Ifthe interests of Farmer X, Corporation or Bank are actually adverse so that Partner
A is precluded from representing Farmer X in his personal injury action, Partner C is also
precluded from representing Farmer X in that action. It is immaterial that Partner A works from
a different office than does Partner C, that Partner A will not provide legal services to Farmer X
or to Bank regarding Corporation and its shareholders, or that Law Firm would screen Partner A
to impede the flow of information that he has as counsel to and a director of Bank.

The issue as it pertains to Corporation is whether Corporation is a former client of Law
Firm. In the absence of a formal conclusion to a client relationship, there isn’t a precise time
period after which a client becomes a “former” client. A determination of whether a client for
which no legal services have been recently performed has become a former client is highly fact
dependent and rests, in part, on the Corporation’s perception about its status as a client of Law
Firm and the reasonableness of that perception. The question is more difficult and closer because
Law Firm has represented Corporation on several transactional matters over a period of many
years and because Corporation likely would have returned to Law Firm for future legal services.

When a law firm represents a client over several years on various matters, the client may
assume the attorney client relationship continues unless the lawyer actually advises the client of
the lawyer’s withdrawal. Rule 1.3 N.D.R. Prof. Conduct, Comment. However, here, at the latest,
Law Firm’s services to Corporation were concluded in 2002. Additionally, it seems that
Corporation has neither communicated with nor retained any lawyer in Law Firm on any matter
since then. In the face of a total absence of communication from Corporation to Law Firm for
more than two years, it would be unreasonable for Corporation to consider itself to be a current
client of Law Firm or for Law Firm to be required to treat Corporation as a current client. See
ABA/BNA Lawyers’ Manual On Professional Conduct at 51:217, citing Rhode Island Ethics Op.
2001-08 (2001).

The subject of undertaking representation on a matter which is adverse to the interests of
a former client is covered by Rules 1.9(a) and 1.9(b) N.D.R.Prof.Conduct which provide:

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

(a) Represent another person in the same matter in which that person's interests are
materially adverse to the interests of the former client; or

(b) Represent another person in 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.

Because Law Firm’s representation of Farmer X in a personal injury action against Corporation,
a former client, is neither the same nor substantially related to the matters upon which Law Firm
previously represented Corporation, the proscriptions of Rule 1.9 do not apply to bar Law Firm
from bringing the personal injury law suit against Corporation. SBAND Opinion 97-04.

Law Firm’s inquiry also requires a determination whether the interests of Farmer X and
Bank actually conflict or whether they are merely potentially adverse. From the facts presented,
the Committee concludes the interests of Farmer X and Bank are potentially adverse. For
example, if Farmer X obtains a judgment against Corporation that exceeds any available
insurance limits Farmer X, along with Bank, will become a creditor of Corporation. In that event
the Law Firm may be representing two clients, Bank and Farmer X, who are seeking to collect
money from Corporation, resulting in a potential conflict of interest. If that event occurs, Law
Firm will have to again determine if an impermissible conflict exists for Law Firm to represent
either Farmer X or Bank with regard to any collection proceedings. Accordingly, because Law
Firm’s representation of Farmer X in the bodily injury case against Corporation might be
adversely affected by the firm’s representation of the Bank, for Law Firm to undertake the
representation of Farmer X in the personal injury action, Law Firm must first comply with Rule
1.7 (c) N.D.R. Prof. Conduct. Rule 1.7(c) provides as follows:

(c) A lawyer shall not represent a client if the representation of that client might be
adversely affected by the lawyer's responsibilities to another client or to a third person,
or by the lawyer's own interests, unless:

(1) The lawyer reasonably believes the representation will not be adversely
affected; and

(2) The client consents after consultation. When representation of multiple clients
in a single matter is undertaken, the consultation shall include explanation of the
implications of the common representation and the advantages and risks involved.

Subsection (c) allows a lawyer to consider and decide for herself whether she
reasonably believes representation of a client will be adversely affected by the firm’s
responsibilities to another client. If the law firm reasonably believes that its representation of
multiple clients will not compromise its representation of any of them, the law firm must,
nonetheless, proceed to obtain the involved clients’ consent to the multiple representations. In
the instant situation, Rule 1.7(c) requires Law Firm to consider and decide that neither its
representation of Farmer X nor that of Bank will be adversely affected by Law Firm’s
prosecution of the personal injury action against Corporation, and then to explain to Farmer X
and to Bank, the implications, advantages and risks involved and, to obtain from both, written
consents to Law Firm’s representation of Farmer X in the personal injury action. Special care
should be taken to ensure the clients’ consent is fully informed in light of the complexity of Law
Firm’s relationships with the clients or clients’ potentially adverse interests. If either Farmer X or

Bank declines to give its written consent to the dual representations, then Law Firm may not
undertake representation of Farmer X in the personal injury action. Furthermore, if an actual
conflict of interest develops between Farmer X and Bank, Law Firm will have to withdraw from
its representations of both clients for matters in which their interests are adverse because even
with client consent Rule 1.7 does not allow a law firm to represent clients with actually adverse
interests.

Law Firm has also inquired about Rule 1.9 N.D.R. Prof. Conduct restrictions on the use
of a former client’s information. Rule 1.9 is not implicated by the facts as Law Firm has
presented them. This is because Farmer X’s personal injury lawsuit is not related or substantially
related to any matter upon which Law Firm represented Corporation. However, Law Firm is
reminded that Rule 1.6 N.D.R.Prof.Conduct protects a former client as well as current clients;
while Law Firm may not be prohibited from using Corporation’s information under Rule 1.9,
Law Firm is prohibited from revealing Corporation’s confidential information without
Corporation’s waiver of Rule 1.6.

Law Firm also inquires about whether it should be screening Partner A to avoid
imputation of information from Bank to Law Firm. Law Firm is deemed to have and know all
confidential Bank information which Partner A has and knows in his role as counsel to Bank.
This information is covered by Rule 1.6 N.D.R. Prof. Conduct proscriptions against disclosure
and may not be used to the disadvantage of Bank without Bank’s consent. If Partner A is
receiving information from Bank in his separate role as a shareholder and director of Bank, that
information may not be disclosed other than as provided under state laws relating to the privacy
of bank customer information. N.D.C.C. Chapter 6-08.1. Issues which arise from Partner A’s
involvement as counsel, director and shareholder to Bank and resolutions of those issues should
be handled within the context of the informed consent which Law Firm must obtain from Bank
under Rule 1.7(c) N.D.R. Prof. Conduct.

Conclusion

Regarding the obligations of Law Firm to Corporation, Farmer X and Bank the
Committee concludes:

1. Because of the amount of time that has passed since Law Firm has performed services
   for Corporation, Law Firm may reasonably consider Corporation to be a former client. A
   law firm may represent a client in a new matter whose interests are adverse to a former
   client so long as the new matter is not related or substantially related to a matter upon
   which Law Firm represented the former client.

2. Because the interests of Farmer X and Bank are potentially adverse, Law Firm must
   comply with Rule 1.7(c) before it may undertake to represent Farmer X in a personal
   injury action against Corporation. Rule 1.7 (c) requires a law firm determine for itself
   that its representation of multiple clients will not adversely affect its representation of any
   of them and then to obtain written informed consent from each affected client before
   undertaking representation in a matter which presents a potential conflict of interest.

3. Rule 1.9 does not prohibit Law Firm from representing Farmer X in the bodily injury
   lawsuit against Corporation because Law Firm’s representation of Farmer X is not
   related or substantially related to Law Firm’s past representations of Corporation.
   Nonetheless, Corporation’s confidential information is protected from disclosure under
   Rule 1.6.

This opinion is provided pursuant to rule 1.2(b), North Dakota Rules for Lawyer
Discipline, which provides:

A lawyer who acts in good faith and reasonable reliance on a written opinion or advisory
letter of the Ethics Committee of the Association is not subject to sanction for violation
of the N.D.R.Prof. Conduct as to the conduct that is the subject of the opinion or advisory
letter.

This opinion was prepared by Marilyn Foss and approved by a unanimous vote of the

Ethics Committee on the 2nd day of February, 4 / a

oe

Mark R. Hanson, Chair