Author(s)

PDF DownloadThe Intersection of Conflicts of Interest and Imputation of Knowledge
By Michael H. Rubin

Probate & Property Magazine: November/December 2008, Vol. 22, No. 5

Real Property|Trust & Estate

Michael H. Rubin is a member in the Baton Rouge, Louisiana, office of McGlinchey Stafford PLLC and the chair of the Real Property Division Ethics and Professionalism Committee.

The ethical tensions that lawyers face concerning conflicts of interest involve balancing one's duties to the particular client, to the profession, to tribunals, and to other clients as well as former clients. One mechanism used by the Model Rules of Professional Conduct to avoid conflict of interest problems is to impute knowledge of one lawyer about client confidences to all lawyers in the firm, regardless of whether any other lawyer in the firm has actual knowledge of the confidence.

The imputation-of-knowledge rule arises from the recognition that most lawyers are not solo practitioners. The fiction of imputation is unnecessary if a single lawyer practices alone, because that lawyer has actual knowledge of all confidences of all clients. Yet the exceptions to the imputation rule appear to reveal that no overarching principle may be in place; rather, there is a balancing of the legal and economic interests. These exceptions seem to abandon the imputation rule when lawyers, government officials, and law clerks seek employment in a firm. This article examines the imputation rule and its exceptions as they apply to real property and trust and estate lawyers.

The Basic Rules

The basic rules are easy, particularly when applied to a solo practitioner. A lawyer cannot represent opposite sides in the same matter. A lawyer may represent current clients against former clients under certain restrictions, generally related to client confidences and whether the underlying facts are similar to the previous representation. A lawyer's personal interests may result in disqualification, but the personal interests are not necessarily imputed to other members of the firm requiring disqualification of the entire firm.

Under Model Rule 1.10, a single lawyer's knowledge of a client confidence extends to each and every member of the law firm, regardless of how many offices the law firm has across the country. Model Rules of Prof'l Conduct R. 1.10. On the other hand, while the imputation-of-knowledge principle is inviolable within a law firm, it has multiple exceptions when lawyers move between firms and when applied to former government officers, public officials, and judges who move into private practice. See id. R. 1.11, 1.12. The result is that potential conflicts concerning existing clients of a firm always require informed consent (under Model Rules 1.7–1.9), but informed consent is not always required when a firm hires a lateral lawyer who had not personally participated in the transaction at the lawyer's former firm or when a firm hires a former government official. Id. R. 1.11.

In other words, the imputation-of-knowledge rule applies strictly within the confines of the law firm entity but is rejected when determining conflicts when a firm hires a lawyer, judge, or former government official—in those instances, the test is actual knowledge, as demonstrated by personal participation, not imputed knowledge. It may be that this result is entirely justified by both economics and public policy, but it calls into question whether in the future other exceptions may be made to the imputation provisions of Model Rule 1.10.

Some Examples

One way to look at the potential problems in the theoretical underpinnings of the conflict/imputation-of-knowledge rules is to consider some hypothetical situations and what the Model Rules allow, permit, mandate, or compel.

Example #1

The Example: Lawyer A and Lawyer B are solo practitioners. Lawyer A's practice emphasizes real estate matters; Lawyer B's practice is devoted to trusts and estates. They decide to rent space in the same building. They each maintain their own staffs and their own file spaces and do not hold themselves out to the public as practicing in a firm with each other. A and B often enlist the other as co-counsel when real estate issues overlap with trust and estate matters.

A new lawsuit arises in which A's long-standing client X will be adverse to B's long-standing client Y. Lawyer B has never done work for A's client X, and Lawyer A has never done work for B's client Y.

Are there any problems for either A or B in representing client X and client Y, respectively, in the lawsuit?

Comment: Under the Model Rules, as long as A has not previously represented B's client (and vice versa), then there appears to be no restriction at all. A and B can represent adverse parties in this litigation and can engage each other as co-counsel in other matters involving other clients as long as they each maintain the confidentiality of their own client's communications and files, and as long as the personal relationship between Lawyers A and B does not prevent each from fully representing the interests of their respective clients. See Model Rules of Prof'l Conduct R. 1.7 cmts. 10–12.

Example #2

The Example: As in Example #1, Lawyer A and Lawyer B are solo practitioners, except now Lawyer A owns the building in which Lawyer B rents space and Lawyer A also charges B for office facilities and employees that B uses. Lawyer A also has a file room with locking file cabinets; Lawyer B rents space in the file room and rents four locking file cabinets for her client files.

Although the two lawyers do n ot hold themselves out to the public as practicing in a firm with each other, Lawyer A has a receptionist who answers the phone “Law Offices,” takes messages, and directs the caller to the appropriate attorney. As in Example #1, A and B often enlist each other as co-counsel when real estate issues overlap with trust and estate matters.

A new lawsuit arises in which A's long-standing client X will be adverse to B's long-standing client Y. As in Example #1, Lawyer B has never done work for A's client X, and Lawyer A has never done work for B's client Y.

Are there any problems for either A or B in representing client X and client Y, respectively, in the lawsuit?

Comment: The result appears to be the same here as under Example #1. As long as A and B maintain separate practices and maintain client confidences, and as long as the personal relationship between Lawyers A and B does not prevent each from fully representing the interests of their respective clients, there appears to be no restriction. A and B can represent adverse parties in this litigation and can engage each other as co-counsel in other matters involving other clients.

Example #3

The Example: Lawyer C is purely a trust and estate lawyer; Lawyer D is purely a real estate practitioner. Lawyers C and D form a partnership. Although they have a partnership to share expenses, the partnership documents state that income is dependent on the billings of each. If Lawyer C bills nothing, Lawyer C still owes the overhead expenses to the partnership out-of-pocket but gets no income from the partnership. Likewise, if Lawyer D bills a million dollars for the year, Lawyer D pays her share of overhead and keeps the rest of the million dollars, sharing none of it with Lawyer C.

Because their practices are so different, Lawyer C keeps her files in a separate file room from Lawyer D. Lawyer's C's secretary is the only one who accesses Lawyer C's files; Lawyer D's secretary is the only one who accesses Lawyer D's files. The files are never “shared.” If Lawyer D has a client who needs trust and estate advice, Lawyer D brings in her partner, Lawyer C, and Lawyer C opens a separate file on this matter and bills the client (on firm letterhead) separately from Lawyer D.

A new matter arises in which a trust and estate client of Lawyer C will be adverse to a real estate client of Lawyer D. Lawyer C has never done work previously for this client of Lawyer D (and vice versa).

Can Lawyer C continue to represent her client and Lawyer D continue to represent her client in this new matter?

Comment: Although the situation here is functionally the same as if C and D maintained separate solo practices (as in the case of Lawyers A and B under Examples #1 and #2), the fact that they operate as a partnership mandates a completely different result, and there is no possible way that either lawyer can handle the matter if the two clients are going to be directly adverse in the same matter. This outcome is from the combination of the imputation-of-knowledge and confidences principles of Model Rule 1.10(a) and the inability to waive the conflict of interest under Model Rule 1.7(b)(3).

On the other hand, if Lawyer D's real estate client was going to be represented by Lawyer Q (in a different firm) in this transaction or litigation, and even if Lawyer D will continue to represent the real estate client on other nonrelated matters, then it is possible that the firm could represent Lawyer C's trust and estate client situation, but only if both clients give informed consent confirmed in writing. In this instance, it is feasible to get the real estate client's truly informed consent, because the real estate client now has Lawyer Q to give advice on whether to consent and the effect of such a consent. The difficult question is how “informed” the consent from Lawyer C's trust and estate client will be. Will Lawyer C be able to fully and impartially disclose all possible issues so that her client can give “informed consent”? Further, will Lawyer C inform the trust and estate client that Lawyer D will be “screened off” from all of the trust and estate client's files and will Lawyer C get the client's informed consent on this issue? Can the client become convinced that true screening will occur and that the client's confidences in all instances will be protected from Lawyer D (and Lawyer D's long-standing real estate client)?

Example #4

The Example: The situation is exactly the same as in Example #3, except that Lawyer C practices in one city in the state and Lawyer D practices in a different city in the same state. Lawyers C and D have a partnership, but in this situation, there is no factual dispute that the files really are kept separately.

Lawyers C and D, although in a partnership, maintain entirely different computer systems and completely different bookkeeping systems; they simply “square up” their partnership books every quarter. As in the previous example, Lawyer C has never done work for D's client (and vice versa).

A new matter arises in which a long-standing trust and estate client of Lawyer C will be adverse to a long-standing real estate client of Lawyer D. Can either Lawyer C or Lawyer D take on the representation?

Comment: As in Example #3, the Model Rules create an absolute bar to the lawyers representing both clients in the same transaction. This is due solely to the fact that C and D have a partnership. The combination of the imputation-of-knowledge rules and the nonwaivable conflict rules concerning “clients” of the firm prevents the lawyers from getting effective waivers from both clients.

Example #5

The Example: The situation is exactly the same as in Example #4. Lawyers C and D are in a partnership, but each practices in a different city with different computers and different accounting systems. Lawyer C, the trust and estate lawyer, decides that the situation is not working out. Lawyer C leaves the partnership and joins a big law firm. Lawyer C brings all her trust and estate clients with her.

A week after joining the big law firm, a matter comes up that will pit Lawyer C's trust and estate client against Lawyer D's real estate client. As in the previous examples, Lawyer C had not previously done work for this particular real estate client of Lawyer D, and Lawyer D had never done any work for this particular trust and estate client of Lawyer C.

Can Lawyer C represent her client against Lawyer D's client, or can Lawyer D compel Lawyer C to withdraw?

Comment: Although functionally the actual knowledge that Lawyer C has about Lawyer D's client (and vice versa) is no different under Example #4 or Example #5 (in both situations, neither lawyer actually knows anything about the other's client), the Model Rules make a distinction when a lawyer changes firms.

Once Lawyer C leaves the C–D partnership taking the trust and estate client with her, the real estate client of Lawyer D is now a “former client” of Lawyer C (and Lawyer C's current trust and estate client is now a former client of Lawyer D). Under Model Rule 1.9(a), as long as the matters are not the “the same or a substantially related matter,” then not only can Lawyers C and D represent former clients who are directly adverse to one another, but no client consent is required.

Example #6

The Example: Lawyer E is a partner in a big law firm. Lawyer E's practice is limited to real estate transactions; Lawyer E never deals with litigation. Lawyer E's main client is Developer. Lawyer E is the only lawyer in the firm with whom Developer deals; no other lawyer in the big law firm works on any matters for Developer.

One of the main clients of the big law firm is Conglomerate, an insurance company that is always involved in insurance claims and subrogation suits. Lawyer E never works on any files involving Conglomerate.

Lawyer E decides to leave the big law firm and to set up a partnership with Lawyer F, a litigator. Developer follows Lawyer E to her new law firm. A week after Lawyer E leaves the big law firm for her new partnership, a dispute arises between Developer and Conglomerate that will require litigation between them.

Can Lawyer E's new firm represent Developer against Conglomerate? Can Lawyer E assist in the litigation?

Comment: As long as Lawyer E was in the big law firm, neither she nor the firm could represent Deve-loper against Conglomerate; this is an unwaivable conflict of interest under the Model Rules.

Yet, once Lawyer E leaves the big law firm, then not only is Conglomerate a former client, but the Model Rules give Lawyer E an additional benefit. Under Model Rule 1.9(b), as long as Lawyer E has not personally “acquired information protected by Rules 1.6 and 1.9(c) that is material to the matter”—in other words, as long as Lawyer E knew nothing about Conglomerate while working at the big law firm—Lawyer E can represent Developer and no consent is required. Likewise, under Model Rule 1.10(b), the big law firm that E has left can represent Conglomerate because no lawyer remaining at the big law firm has any information about Developer and possesses no confidences pertaining to Developer.

Example #7

The Example: Law Clerk G is one of three law clerks who work for Judge H, who divides her cases among her law clerks. A major suit has been ongoing between Landlord and Tenant; Law Clerk G has not worked on that case.

A law firm that represents Landlord wants to hire Law Clerk G. At the time Law Clerk G is hired, the lawsuit has not come to trial.

Is there any problem with law firm hiring Law Clerk G?

Comment: The test under Model Rule 1.12 (the one applicable to law clerks as well as to judges and third-party neutrals) is essentially the same as the one that applies to lawyers who move between firms. Under Model Rule 1.12, there is no need to screen or notify the client if the law clerk was not personally involved in the case; apparently the law clerk can leave the judge on day one and start work on the case on day two as long as the law clerk was not personally involved in the case. Of course, Model Rule 1.12 does not deal with statutes or rules that may require judges to recuse themselves in such instances.

The Lack of a Unified Theory on Conflicts and Imputation-of-Knowledge Rules

As these examples demonstrate, two mutually inconsistent theories appear to be at work in the conflict rules. One rule is that knowledge of any lawyer in a firm infects all the other lawyers in the firm, thereby creating an unwaivable conflict of interest if two clients become adverse to one another in the same proceeding. Thus, no matter how physically and geographically separated a law firm's offices are, the imputed knowledge rule applies uniformly. Actual knowledge is simply irrelevant. The other rule is that imputation of knowledge between law firms is not automatic just because lawyers in each firm may work with each other from time to time on cases or transactions.

The first rule (imputation-of-knowledge) applies to all lawyers of all clients within a law firm. The second rule, which looks at actual knowledge, applies to former clients, to lawyers moving between law firms, and to judges, law clerks, and government employees seeking law firm employment.

The multiple exceptions applicable to lawyers who move from firm to firm mean that the imputation-of-knowledge rule is a legal fiction that the Model Rules impose as a matter of policy on lawyers who practice under the umbrella of a law firm entity. This rule remains in place although many large law firms operate in virtual silos composed of practice groups and geographic offices. In many large multistate firms, practice groups may operate as almost independent fiefdoms with few situations in which a lawyer transfers from one practice group to another, and lawyers in different sections in geographically dispersed offices may have little if any knowledge of particular matters pending in another section of another office in another state.

There can be little doubt that law firms will continue to grow. The smallest firms in national “Top 200” lists exceed 200 lawyers, with the biggest firms numbering in the thousands. Some have claimed to spot trends that seem to separate law firms that are between 200 to 500 lawyers from those that are larger than 500, with the larger ones growing ever more powerful and prosperous.

The question is not the appropriateness of the imputation-of-knowledge rule, for its purpose is salutary—a client should be told if a law firm in which it has confided confidences is considering taking a position adverse to the client. That is why informed consent of the client, confirmed in writing, is required in waivable conflict situations.

Rather, the question is whether a time may come when the underlying theory of the imputation-of-knowledge rule may be subject to re-examination. Clients have no way of knowing how broadly their confidential communications are dispersed within a firm, but the rules already distinguish between lawyers who practice in a firm and lawyers moving between firms. The underlying issue is who should bear the burden of when the fiction of imputation-of-knowledge arises. The Model Rules, as they currently exist, prevent the law firm from making any exceptions to the imputation-of-knowledge rules for existing lawyers in the firm while at the same time allowing the firm, without the client's knowledge or consent, to hire laterals, judges, and law clerks who had no personal involvement in a matter.

One cannot explain the exceptions to the imputation-of-knowledge rules solely by looking at client expectations. Should we expect simultaneously that (1) an existing firm client would always want to be consulted about a potential or actual conflict from a new matter coming to a lawyer who is in another section of the firm, who is located in a distant geographic office, and who had never worked on the client's matters, but that (2) the same client would never want to be consulted to determine whether a lateral hire had actually worked on matters adverse to the client when the lateral's former firm continues to represent those with adverse interests?

In the former instance, the Model Rules conclude that the client would never agree to have the law firm unilaterally make the determination to “screen-off” the existing lawyer who had no actual knowledge of the client's confidences so that a conflicting matter can be handled. Yet in the latter instance, the Model Rules conclude that the client would always agree to have the law firm act unilaterally in determining whether the lateral hire had no personal knowledge or involvement in the conflicting matter, even though while at the former firm the lateral was imputed with complete knowledge of the conflicting matter. In the former instance, the imputation-of-knowledge rule is absolute; in the latter instance, the exception is so broad that it eviscerates the rule.

Conclusion

The underlying question is whether Model Rules are merely a “framework” for ethics to be balanced by the need of a lawyer to “earn a satisfactory living” (as described in the Preamble to the Model Rules) or whether the Model Rules should be something more. If the Model Rules are only a practical balancing test, then in the future there may be a re-evaluation of where the fulcrum point should be in weighing the imputation-of-knowledge rules with the requirement of client consent.

Return To Issue Index

Advertisement