October 5, 1999
American Bar Association
Commission on the Evaluation of the
Rules of Professional Conduct
541 North Fairbanks, 14th Floor
Chicago, Illinois 60611
Attention: Susan Campbell
Re: Proposed Rule 1.10 – Public Discussion Draft
Ladies and Gentlemen:
This letter is being sent in response to the publication by the Ethics 2000 Commission of its Draft for Public Comment dated March 23, 1999 of Model Rule 1.10.
These comments have been prepared by the Drafting Group on Screening of the Ad Hoc Committee on Ethics 2000, Section of Business Law of the American Bar Association. The Ad Hoc Committee on Ethics 2000 is composed of the members of the Section of Business Law listed at the end of this letter, including the Chairs of the principal Committees of the Section on practice, professionalism and ethics, the Committees on Conflicts of Interest, Counsel Responsibility, Law Firms, Lawyer Business Ethics, Corporate General Counsel and the Ad Hoc Committee on Multidisciplinary Practice, as well as other Section leaders and members knowledgeable in the field, including two members of the ABA Standing Committee on Ethics and Professional Responsibility (the "Ethics Committee"). A draft of this letter was circulated for comment among the members of the Ad Hoc Committee and the Officers of the Section. A substantial majority of those who have reviewed the letter in draft form have indicated their agreement with the views expressed. However, this letter does not represent the official position of the Section nor does it necessarily reflect the views of all of those who have reviewed it.
We recommend that there be no imputation in the context of concurrent representation if (i) screening is in place, (ii) the matters are not related, (iii) each affected client is notified, and (iv) there is no significant risk of diminution of the loyalty owed by any lawyer in the firm to its clients. We also support the proposal of the Ethics Committee to modify the Commission’s Proposed Rule 1.10 to allow for screening when a personally prohibited lawyer joins a firm. We believe, however, that screening should also be allowed to avoid the imputation of current conflicts.
In its Proposed Rule 1.10, the Commission does not adequately recognize the enormous changes in the past 20 years in the practice settings in which legal services are provided and in the relationships between lawyers in private practice and the large users of legal services. Because of that, the proposed rule continues to require the imputation of conflicts to all lawyers in all firms in all circumstances of adverse representation involving current clients.
In our view, the Commission’s Proposed Rule 1.10 treatment of screening is based on two presumptions that are not valid. The first presumption, as Robert Creamer points out in his Comments to the Commission dated August 5, 1999, is that every lawyer in every law firm always knows everything about every matter in which every other lawyer in the firm may be involved. This is true only in a solo practice setting. It may be substantially true in small firm settings, but it obviously is wrong in large multi-office law firms. There is then the further incorrect presumption, ordinarily rebuttable only in the case of government lawyers, that lawyers who have confidential information of a firm’s client that may be material to a current adverse matter will inevitably disclose that information within the firm. This is also wrong and is a misconception of the response by lawyers to their obligations of confidentiality. See Brian Redding, Comments to the Commission regarding Proposed Model Rules 1.7, 1.8, 1.9, & 1.10, August 4, 1999 (for a convincing argument that disclosure of client confidential information does not occur when a formal screening mechanism is in place).
The practice settings on which these presumptions were based have changed dramatically. By 1950, only 19 firms in the country consisted of 50 or more lawyers and by 1970, a year after the adoption of the Model Code of Professional Responsibility, that figure had increased to only 46 firms. Robert L. Nelson, Practice and Privileges: Social Change and the Structure of Large Law Firms, Am. B. Found. Res. J., 1981 Winter, 105-7,109. In 1980, 257 firms consisted of 50 or more lawyers and by 1995 there were 702 firms in the United States with over 50 lawyers. Clara N. Carson, The Lawyer Statistical Report, The U.S. Legal Profession in 1995, Am. B. Found, (1999), ("Statistical Report"). Translated into numbers of lawyers, 27,190 lawyers practiced in firms of 50 or more lawyers in 1980. By 1995 that number had increased to 105,316 lawyers, approximately 70% of whom practiced in multi-office firms. Statistical Report. Prior to the adoption in 1969 of the ABA Model Code of Professional Responsibility, few firms maintained offices in other states. See Comment, Regulating Multi-State Law Firms, 32 Stan. L. Rev. 1211-14 (1980). By 1995, there were 280 firms of over 50 lawyers that maintained offices in more than one state. These firms consisted of approximately 70,000 lawyers. Statistical Report.
The practices of the large users of legal services also have changed as have their relationships to their lawyers. Large multi-office conglomerate clients through their highly sophisticated employed attorneys now regularly engage many different law firms and different lawyers for representation in different substantive areas. For instance, several years ago General Motors was reported "historically" to have used 800 firms but intended to reduce that number to 300. Many of these clients also consider it a good business practice to hire lawyers and not law firms, and to hire these lawyers after a "beauty contest" or a response to a request for bids. This has resulted in changing the nature of the loyalty owed to these clients. As early as 1981, commentators concluded that the concept of "legal friend" in these circumstances is outmoded. See Developments in the Law – Conflicts of Interest in the Legal Profession, 94 Harv. L. Rev. 1244, 1302 (1981).
These developments were recognized by the Ethics Committee in its Formal Opinion 93-372, dated April 16, 1993, addressing the changes in legal practice that have also prompted the recourse to waivers of future conflicts, when it stated:
"The impetus for seeking prospective waivers has grown as the nature of both law firms and clients has changed. In an era when law firms operated in just one location, when there were few mega-conglomerate clients and when clients typically hired only a single firm to undertake all of their legal business, the thought of seeking prospective waivers rarely arose. However, when corporate clients with multiple operating divisions hired tens if not hundreds of law firms, the idea of that, for example, a corporation in Miami retaining the Florida office of a national law firm to negotiate a lease should preclude that firm’s New York office from taking an adverse position in a totally unrelated commercial dispute against another division of the same corporation strikes some as placing unreasonable limitations on the opportunities of both clients and lawyers."
Although the opinion continues by endorsing the view that such a situation presented a conflict, it recognizes that there was nothing in the example that should prevent a prospective waiver from being effective.
The analysis and understanding of the duty of loyalty to clients has also lagged behind the reality of practice and results in a continuing misapprehension of when a duty of loyalty might be breached. Lawyers must serve their clients with competence, independent judgment, to the best of their ability and with undivided loyalty. This includes maintaining the clients’ confidences. The presumption that the lawyers in the situation in the example in Opinion 93-372 will not do so is unsupported and, in the circumstances of many large clients, is unwarranted.
An additional change to the practice of law has been the recent dramatic increase in the lateral movement of attorneys between firms. According to a recent national survey conducted by the National Association for Law Placement, the movement of lawyers from firm to firm during their careers has become increasingly commonplace, and firms are now hiring new attorneys laterally at a rate that surpasses entry-level hiring. Martha Neil, More Firms Eschew New Grads for Lateral Hires, Chi. Daily Law Bulletin, Feb. 18, 1999, at 1. There appear to be many reasons for this phenomenon. For example, many lawyers are seeking greater autonomy, more interesting work, higher compensation or more flexible hours. Other lawyers relocate due to family relocations or law firm downsizing, dissolution or bankruptcy. Whatever the cause, strict application of the current Rule 1.10 without screening restricts the ability of these lawyers to find new positions without unnecessary delay and disruption. The increasingly common lateral movement of lawyers between firms requires that Rule 1.10 be reexamined to operate properly in the new practice settings.
In spite of these developments, there is no dispute between lawyers and their clients over the goals and principles embodied in the practice of law. Clients must be assured of undivided and undiminished loyalty on the part of the individual lawyer or lawyers actually serving them and be assured that client confidences will not be misused. The general rule of imputation, however, by employing presumptions that are not now valid, does not necessarily further these goals; rather, it unnecessarily ignores the interests of clients and restricts the mobility of lawyers.
Permitting a law firm to be adverse to a current client in an unrelated matter is not unknown. Since January 1990, Rule 1.06(b)(1) of the Texas Disciplinary Rules of Professional Conduct has provided that a lawyer could represent a client adversely to another client of the firm if the matters in question were not substantially related. In such situations, the firm may proceed without notice to or consent from the other client. Nor is screening required by the Texas rule. (The Fifth Circuit has declined to recognize this rule in federal cases. See In re American Airlines, Inc., 972 F.2d 605, 610 (5 th Cir. 1992)). In contrast, the Ad Hoc Committee's proposal would allow a firm to proceed with an adverse representation in an unrelated matter only after written notice to each affected client and the imposition of an effective screening procedure. The firm's loyalty would also be subject to review under the five factors discussed in the proposed comment. Viewed in context, the Ad Hoc Committee's proposal offers a practical solution to the technical conflicts that arise from contemporary practice while preserving protection of the legitimate concerns of firm clients.
As stated above, we support the proposal of the Ethics Committee. Our proposal would build on those suggested changes. For convenience, we have shown below, first, the Ethics 2000 Commission proposal in which material added to the current Model Rule has been underlined and deletions from the current Model Rule have been
struck through; second, additions suggested by the Ethics Committee (and not deleted by the Ad Hoc Committee proposals) are bold printed, and its deletions are [bracketed]; and third, the additions that we present are shown by double underlining.
IMPUTED DISQUALIFICATION: GENERAL RULE
(a) While lawyers are associated in a firm, none of them shall
knowingly represent a client when the lawyer knows or reasonably should know that any one of them practicing alone would be prohibited from doing so by Rules 1.7 (a), 1.8 (c), or 1.9 or 2.2, [ unless the prohibition is based on a personal interest of the prohibited lawyer and does not present a significant risk of materially limiting the representation of the client by the remaining lawyers in the firm] except as permitted in paragraphs (b) and (c ).
(b) If the prohibition is based on a personal interest of the prohibited lawyer and does not present a significant risk of materially limiting the representation of the client, any of the remaining lawyers in the firm may represent the client.
(c) The provisions of paragraph (a) shall not be applicable to conflicts arising under either Rule 1.7 or 1.9 if:
(1) The prohibited lawyer is screened from any contact with the new matter in accordance with paragraph (f);
(2) the lawyer undertaking the new matter is screened from any contact with any disqualifying matter in accordance with paragraph (f);
(3) any disqualifying matter and the new matter are not the same or substantially related;
(4) there is no significant risk of a diminution of the obligation of loyalty by a lawyer of the firm to its clients; and
(5) in the case of conflicts arising under Rule 1.7, each affected client is advised in writing of the circumstances warranting the implementation of screening procedures and of the actions taken to comply with this rule.
[(b)]( d) When a lawyer has terminated an association with a firm, the firm is not prohibited from thereafter representing a person with interests materially adverse to those of a client represented by the formerly associated lawyer and not currently represented by the firm, unless:
(1) the matter is the same or substantially related to that in which the formerly associated lawyer represented the client; and
(2) any lawyer remaining in the firm has information protected by rules 1.6 and 1.9(c) that is material to the matter.
[(c)]( e) A disqualification prescribed by paragraph (a) may be waived by the affected client under the conditions stated in rule 1.7.
(f) For purposes of this rule, a lawyer in a firm will be deemed to have been screened from any contact with a matter if:
(1) the lawyer is specially apportioned no part of the fee therefrom; and
(2) the firm adopts procedures that are reasonably likely to be effective in preventing material information from being disclosed to the screened party or parties."
We also suggest that the proposed Comment to Proposed Rule 1.10, specifically proposed Comment , be modified to conform to our proposed Rule and that there be added to the proposed Comments to Rule 1.10, the following (additional commentary proposed by the Ethics Committee is bold printed and additional commentary we present appears as normal text):
[7A] For purposes of this Rule and Rules 1.11, 1.12 and 1.18, effective screening requires both that the lawyer is not specially apportioned any part of the fee from the representation adverse to the former client, see Comment  of Rule 1.11, and that procedures are adopted and followed that are reasonably likely to prevent material information from being disclosed by the prohibited lawyer to the firm or its client and its client. Effective screening procedures will vary according to the situation, but at a minimum will entail an agreement by the prohibited lawyer not to participate in or discuss the matter with any other firm member and adherence of the prohibited lawyer to that agreement, notice to all lawyers associated with the firm of this requirement, and, to the extent feasible, isolation of sensitive documents and other information relating to the matter.
[ ] The rule in paragraph (a) does not prohibit representation where neither question of client loyalty nor protection of confidential information is presented. Whether a lawyer would be deemed materially limited in pursuing a matter on behalf of a client because of loyalty to another client of the firm would depend upon several factors, including (i) the size of the firm; (ii) the number of the firm's offices and where the lawyers representing each client are located; (iii) the type of work the firm has done or is doing for each client in question; (iv) the relationship between the firm and each client; (v) the characteristics of each client; and (vi) the relationship between the clients in question. For example, where a lawyer in a firm's New York office represents a particular client, and another lawyer in the firm's San Francisco office represents another client, the risk of each representation affecting the other is smaller than if both lawyers worked in the same office. Other divisions within law firms, such as departments and practice groups, further reduce the risk that unrelated representations will adversely affect the relationships with the clients in question. Also, when evaluating the risk of diminution of loyalty under factor (iii), if a lawyer at the firm represents a client with respect to an isolated minor matter and the firm does not act as that client's regular outside counsel, it is less likely such representation would materially limit the representation by another lawyer at the firm of another client in an unrelated matter. However, the conclusion perhaps would be different with respect to the firm's representation of a particular client in an ongoing matter or litigation. Such concerns would also be evaluated under factor (iv). Where a client regularly engages a firm to perform legal services and there is an expectation of an ongoing relationship, the risk of such representation affecting the representation of another client in an unrelated matter is greater than where an assignment is obtained from a client through a beauty contest.
[ ] In the case of conflicts arising under Rule 1.7, Rule 1.10(c)(5) requires the firm to advise each affected client of the screening procedure being implemented. Following receipt of the notice of the screen, the new client would have the opportunity to engage alternative counsel if it believed the firm's obligation of loyalty to it was diminished or confidential information was at risk because of the firm's representation of the other client. Whether the firm's representation of the initial client would be prejudiced because of the new client matter must be taken into consideration under factor (iii) of Comment [ ] above, e.g., such client may not be in a position to change counsel.
[ ] Rule 1.10(f) establishes basic requirements for effective screening. In practice, screening procedures will vary according to the particular situation and law firm. In evaluating whether a particular screening procedure is effective, several of the factors listed in Comment [ ] would be relevant, including (i) the size of the firm; and (ii) the number of the firm's offices and where the lawyers representing each client are located.
We appreciate the opportunity to submit comments and are available to meet with the Commission or your Reporter to respond to any questions.
Larry P. Scriggins, Chair
Ad Hoc Committee on Ethics 2000
Drafting Group on Screening
Robert L. Berner, Jr.
Robert A. Creamer
Larry P. Scriggins
Ann Yvonne Walker
Robert L. Berner, Jr.
Members of the Ad Hoc Committee
on Ethics 2000:
Larry P. Scriggins, Chair
Harold S. Barron
Robert L. Berner, Jr.
Robert A. Creamer
Richard E. Gutman
Richard E. V. Harris
Dennis J. Lehr
Simon M. Lorne
Bruce A. Mann
Frank D. Mayer, Jr.
Charles E. McCallum
M. Peter Moser
Robert E. O'Malley
Marshall L. Small
A. A. Sommer, Jr.
Charles H. ("Hank") Still
Ann Yvonne Walker