December 15, 2015

ETHICS CORNER: Representing Organizations and Job Mobility

Robert Evans III

Andy was leaving an ethics CLE training session, chatting with one of his partners when he learned that one of the firm’s public company clients, Hopwell Corp., was looking for a new general counsel. Andy, a New York corporate and securities lawyer, has a good friend from law school, Rachel, who is the general counsel and sole in-house lawyer at another firm client. Andy’s first instinct is to call Rachel and offer to introduce her to the recruitment committee at Hopwell.

Before he does that, Andy calls a more senior partner in the firm, the relationship partner for Rachel’s company. The relationship partner’s reaction is that Rachel is deeply involved in several critical matters for her company, that the CEO of her company would not appreciate Andy and the firm luring her away from her post at this time and so Andy should not mention the job to Rachel.

Andy is torn. He knows Rachel is ambitious and would be interested in the opportunity. He believes it would be better for the firm to have Rachel as GC of Hopwell (a much bigger company with way more legal spend) than for her to remain where she is. From a business point of view, he disagrees with the relationship partner. Beyond his business concerns, perhaps because his head is full of ethics rules and cautionary tales from his recent seminar, Andy wonders if the ethics rules might limit what he can do.

Identifying the Client

As a corporate and securities lawyer, Andy rarely represents individuals. So, he is quite familiar with the New York ethics rules regarding representing corporations. Rule 1.13 Organization as Client tells him that in most cases the corporation is the client, not any of its employees or other constituents. So Andy concludes that he will not treat Rachel as a client. He does identify both companies (Rachel’s company and Hopwell) as firm clients.

Considering Conflicts

Andy then examines whether helping Rachel get a new job might involve him in a conflict of interest. To do that, he examines Rule 1.7 Conflict of Interest: Current Clients (see sidebar for the language of the rule). That rule limits a lawyer’s representation of a client if it would involve the lawyer in representing differing interests or if there is a significant risk that the lawyer’s professional judgment on behalf of a client will be adversely affected by the lawyer’s own financial, business, property or other personal interests.

Following some of his learning in his ethics CLE, Andy first thinks through the rule using himself as the lawyer. He decides that he may have a personal interest, his friendship with Rachel and his hope for more business for his firm if she goes to work for Hopwell. He concludes that he would not be “representing differing interests” and does not believe his professional judgment would be clouded in any real way. He then tries to imagine how to apply the rule with the term “lawyer” applying to his whole firm. One aspect of the situation that he did not take into account when thinking about himself is the Hopwell-client relationship. His firm is counsel to Hopwell and owes duties to that client. Andy decides that in zealously representing Hopwell, the firm should want to introduce Rachel. However, he also considers that to be a bit outside the scope of the firm’s representation.

Before he ends his study of the ethics rules, he recalls that his firm has offices in several states that have adopted the ABA Model Rules of Professional Conduct. Andy checks and discovers that, while substantively similar, Model Rule 1.7 (see sidebar for rule) has a slightly different language and emphasis. It does not cover “differing interests” the way the New York rule does, so it seems somewhat narrower. “‘Differing interests’ include every interest that will adversely affect either the judgment or the loyalty of a lawyer to a client, whether it be a conflicting, inconsistent, diverse, or other interest.” 

Consulting Others

Another lesson Andy learned in his ethics CLE is that the perspective of the person considering a conflict can be impaired by the potential conflict itself. Therefore, Andy’s next step is to consult with other lawyers in his firm. His firm does not have a general counsel, but does have a Conflicts and Ethics Committee. He decides to consult only with committee members just in case they conclude there is a conflict so that those discussions will be privileged.

The committee member Andy consults points out to Andy that the firm is frequently in the position of representing clients that are direct competitors. Because the firm is comfortable representing multiple clients that compete, it has gotten comfortable with the line between taking actions that might disadvantage a client and those that would violate Rule 1.7. The committee member sees Andy’s current situation as similar – some actions that Andy might take should be OK. They go through a range of choices such as calling Hopwell to champion Rachel for the job, introducing her to the recruitment committee, and pushing Rachel to consider the job.

The committee member suggests that Andy can call Rachel and alert her to the job opening. They decide that doing much more than that would make them uncomfortable (though they do not parse strictly between the potential ethics issue and the business and relationship one).

Andy goes back to the relationship partner for Rachel’s company and works through the business and relationship concerns. They conclude that Andy will let Rachel know about the job opportunity.

Conclusion

Reflecting on his experience, Andy realizes that potential conflicts between existing clients can arise in perfectly ordinary ways. Before this situation, Andy tended to think of conflicts as arising only in the course of actively representing a client. For example, if he would have to negotiate against a client, he would know to get a waiver or turn down the new assignment. He now has a better appreciation for the scope of Rule 1.7 and a realization that more situations raise ethics questions than he imagined. He also is comforted to know that many potential conflicts can be resolved through careful consideration and managed without violating the rules.

New York Rules of Professional Conduct

Rule 1.7:  Conflict of Interest: Current Clients

(a)    Except as provided in paragraph (b), a lawyer shall not represent a client if a reasonable lawyer would conclude that either:

(1)    the representation will involve the lawyer in representing differing interests; or

(2)    there is a significant risk that the lawyer’s professional judgment on behalf of a client will be adversely affected by the lawyer’s own financial, business, property or other personal interests.

(b)    Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1)    the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2)    the representation is not prohibited by law;

(3)    the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4)    each affected client gives informed consent, confirmed in writing.

For comment on the rule, click here.

Model Rules of Professional Conduct

Rule 1.7: Conflict of Interest: Current Clients

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client; or

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law;

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4) each affected client gives informed consent, confirmed in writing.

For comment on the rule, click here.

Robert Evans III

Partner at Shearman & Sterling LLP

“Ethics Corner” is sponsored by the Professional Responsibility Committee, and is edited by Robert Evans III, a partner at Shearman & Sterling LLP.