Does a firm's past collection work for a company bar it from defending a lawyer in a disciplinary case arising from that company's later sale?

Plain-English summary

A firm had formerly represented a corporation, but only in collection matters (specifically, a collection action against a former key employee). The corporation, owned by an employee stock ownership plan (ESOP), was later sold. In that sale, Attorney X represented the purchaser and Attorney Y represented the ESOP; after closing, Attorney X filed a disciplinary complaint against Attorney Y. Attorney Y asked the firm to defend him in the disciplinary matter, and Attorney X left a voicemail asserting that the firm's former representation of the corporation created a conflict. The firm had no role in creating the ESOP or in the sale.

The committee analyzed Rule 1.9 (duties to former clients), which bars a lawyer from representing a person in the same or a substantially related matter materially adverse to a former client. It first concluded the firm did not represent the corporation in the same matter, since the firm's work was limited to collections and it had no part in the sale that generated the complaint. It then applied the "substantially related" standard from the Rule 1.9 comment and its own Opinion 03-01: matters are substantially related if they involve the same transaction or legal dispute, or if there is a substantial risk that confidential information normally obtained in the prior representation would materially advance the client's position in the later matter.

The committee found no indication that information from the collection actions would materially advance Attorney Y's position in the disciplinary proceeding, observing that collection-matter information generally would not be material to allegations of misconduct in an unrelated sale. So Rule 1.9 did not prohibit the representation. The committee cautioned that the conclusion rests on the limited facts provided and is fact-dependent: if the collection work had in fact yielded confidential information that would materially advance Attorney Y's position, a conflict would exist under Rule 1.9(a). It reminded the firm that Rule 1.6(a) and Rule 1.9(c)(2) still bar revealing information relating to the former representation absent consent.

In practice

This 2009 opinion applies North Dakota Rules of Professional Conduct 1.9 and 1.6 (with imputation under Rule 1.10 noted). Under those rules, the committee held that a firm's former collection work for a company does not bar it from defending a lawyer in a later disciplinary proceeding arising from a sale the firm had no part in, because the matters are neither the same nor substantially related and there was no indication that confidential information from the collection work would materially advance the lawyer's position. The committee held the analysis is fact-dependent, so the result could change if the collection work had in fact yielded such information, and that the firm must still protect the former client's confidential information under Rule 1.6(a) and Rule 1.9(c)(2).

Common questions

Q: Does any prior work for a company conflict a firm out of every later matter involving that company?

A: No. The committee said Rule 1.9 bars only the same or a substantially related matter. The firm's collection work was not substantially related to the disciplinary case arising from the company's later sale.

Q: How is "substantially related" decided?

A: The committee applied a case-by-case test: matters are substantially related if they involve the same transaction or dispute, or if there is a substantial risk that confidential information normally obtained in the prior work would materially advance the client's position in the later matter.

Q: Could the answer change?

A: Yes. The committee stressed the conclusion rests on the limited facts provided, and that if the collection work had actually yielded confidential information that would materially advance the lawyer's position, an impermissible conflict would exist under Rule 1.9(a).

Background and rules framework

The opinion interprets North Dakota Rules of Professional Conduct 1.9 (Model Rule 1.9, duties to former clients) and 1.6 (Model Rule 1.6, confidentiality), and notes imputation under Rule 1.10(a) (so it makes no difference which lawyers handled which matter). The analysis turns on the "substantially related matter" standard in the Rule 1.9 comment and the risk that prior-representation confidences could materially advance the later representation.

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

Cases:

• Continental Resources, Inc. v. Schmalenberger, 2003 ND 26, 656 N.W.2d 730 (substantial-relationship analysis)

Other opinions cited:

• SBAND Opinion 03-01 (substantially-related test, decided case by case)
• SBAND Opinion 05-01 (imputation of a former-client conflict across a firm)

See also

• SBAND Ethics Op. 03-01: Former-Client Conflict in a Derivative Action
• SBAND Ethics Op. 05-01: Representing a Plaintiff Against a Former Client
• 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_09-07.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. 09-07

November 12, 2009

The Ethics Committee received a request regarding whether representation of a
potential client would be a conflict of interest.

FACTS PROVIDED

Corporation’s assets were owned by an employee stock ownership plan (ESOP).
Corporation decided to sell. During the sales talks, Attorney X represented the
Purchasing Company; Attorney Y represented the ESOP, which owned Corporation.
Although complications occurred during the sale, the transaction did ultimately close.

After the sale closed, Attorney X filed an ethical complaint against Attorney Y based on
the sales transaction. Attorney Y contacted Firm about representing him in the
disciplinary matter. Attorney X left a voice mail with Firm indicating a conflict of interest
prevented Firm from representing Attorney Y in the disciplinary proceeding. The
alleged conflict is due to Firm's former representation of Corporation.

Firm’s former representation of Corporation was limited to collection actions. — Firm
represented Corporation in a collection action against a former key employee of
Corporation. Attorney X was substituted as counsel in the collection matter when
Purchasing Company purchased Corporation. Firm did not represent Corporation in the
creation of the ESOP plan or the sales transaction between the Purchasing Company
and Corporation. '

QUESTION PRESENTED
Is it a conflict of interest for Firm to represent Attorney Y in the disciplinary proceeding?
DISCUSSION

Rule 1.9 of the North Dakota Rules of Professional Conduct addresses lawyers’ duties
to former clients. It provides, in pertinent part:

(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

' The Firm correctly does not distinguish between which lawyer(s) in Firm represented
Corporation and which lawyer(s) in Firm would represent Attorney Y since one lawyer's
disqualification would be imputed to the Firm. See N.D. Rules of Prof'l Conduct 1.1 O(a);
Opinion No. 05-01 at 2.

in which that person's interests are materially adverse to the interests of the
former client unless the former client consents 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 in the same or a substantially related
matter except as these Rules would require or permit 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 io a client.

Id.

Under Rule 1.9, the issue presented is whether the Firm’s former representation of
Corporation in collection matters was “the same or a substantially related matter” as the
disciplinary proceeding of Attorney Y.

The Firm unequivocally states it did not represent Corporation in the creation of the
ESOP plan or the sales transaction between the Purchasing Company and Corporation.
Regarding the sale of Corporation, Firm states it “was not involved in that matter at all.”
Accepting Firm’s representation, the Ethics Committee concludes Firm did not represent
its former client, Corporation, in the same matter as requested by Attorney Y.

Whether matters are “substantially related” depends of the facts and “is usually
determined on a case-by-case basis.” Opinion No. 03-01, at 11. “Matters are
‘substantially related’ for purposes of this Rule if they involve the same transaction or
legal dispute or if there otherwise is a substantial risk that confidential factual
information as would normally have been obtained in the prior representation would
materially advance the client's position in the subsequent matter.” N.D. Rules of Prof’
Conduct 1.9, cmi. 3; see aiso Continentai Res.,inc. v. Schmaienberger, 2003 ND 26, Til
20-24, 656 N.W.2d 730.

There is no indication from the information provided by Firm that information obtained in
Firm’s collection actions for Corporation would materially advance Attorney Y’s position
in the disciplinary proceeding. Generally information obtained in a collection matter
would not be material to allegations of unprofessional conduct by an attorney in an
unrelated sales transaction. Based on the facts provided by Firm, the Ethics Committee
finds Firm’s past representation of Corporation is not substantially related to its desired
representation of Attorney Y in his disciplinary proceeding. This is emphasized by
Firm’s assertion it was in no way involved in the transaction between Corporation and
Purchasing Company, which is the basis of Attorney Y’s disciplinary complaint.

It is noted that the Ethics Committee’s finding is based on the limited information
provided by Firm and confidential information typically obtained during collection
actions. Because this issue is fact dependent, if the collection actions did in fact include
confidential information which would materially advance Attorney Y’s position in the
disciplinary proceedings, an impermissible conflict exists under Rule 1.9(a).

CONCLUSION

Based on the facts presented by Firm, the Ethics Committee finds Rule 1.9 does not
prohibit Firm from representing Attorney Y in his disciplinary proceedings. Although the
Ethics Committee finds Rule 1.9 does not prohibit Firm from representing Attorney Y in
his disciplinary proceedings, the Firm is reminded of the requirements of Rule 1.6(a)
and Rule-1.9(c)(2). Those rulas prohibit Firm from revealing information reiating io its
former representation of Corporation absent consent, except as permitted or required by
the Rules of Professional Conduct.

This opinion is provided pursuant to rule 1.2(B) of the 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 North Dakota Rules of Professional
Conduct as to the conduct that is the subject of the opinion or advisory
letter.

The opinion was prepared by Douglas A. Bahr and approved by a unanimous vote of
the Ethics Committee on the 12" day of November, 2009.

LZ
Dann Greenwood, Chair