September 01, 2016

Dropping a Client Like a “Hot Potato”

When a lawyer seeks to terminate a client-lawyer relationship to take on a matter adverse to the client, the lawyer is committing a potential breach of the fiduciary duty of loyalty owed to that client.

Michael Downey

Paradox was waiting when Ethox entered the office. “I have a question for you,” Paradox said. “I have been losing some sleep over it.”

“What’s the issue?” Ethox voiced concern.

“Our firm has been representing Jay on an assortment of matters,” Paradox began, “since we represented Jay in the suit brought over dissolution of Jay’s partnership with Kaye.”

“I remember the Jay-Kaye litigation quite well,” Ethox responded. “It was the subject of several of our earlier discussions on ethics issues.”

“Precisely,” Paradox said. “Since the litigation with Kaye ended, our work has been pretty sporadic. The last time I did billable work for Jay was about four weeks ago. Jay still has not paid our invoice for that work.

“Now, however,” Paradox continued, “I have been asked by Senior Partner to fire Jay as a client.”

“Really,” Ethox sounded surprised. “What is the problem?”

“Jay has not done anything wrong, really,” Paradox answered. “Rather, another firm client, Acme Corporation, has contacted us about investigating potential patent infringement. Senior Partner received a list of parties to investigate. Jay’s name is on the list.

“Senior Partner is concerned that, if Jay is on the list, we won’t get the work because we have a conflict of interest,” Paradox finished.

“Senior Partner is probably right,” Ethox offered.

“But the work we have done for Jay is not connected at all to the patents we would be investigating for Acme,” Paradox resisted. “Does unrelated work even create a conflict?”

“For a current client, yes, even unrelated work can create a conflict,” Ethox responded. “Under ABA Model Rule 1.7(a), a lawyer cannot assume a representation where there is a concurrent conflict of interest. Rule 1.7(a)(1) identifies circumstances where two clients are ‘directly adverse’ as one example of a concurrent conflict.

“Thus, considering that Jay is a client,” Ethox advised, “under Rule 1.7(a)(1), our firm cannot undertake a representation for another client like Acme directly adverse to Jay, even if the work we would be doing adverse to Jay would be completely unrelated to the work we had done for Jay.”

“That’s why Senior Partner wants me to terminate our representation of Jay, to cure the conflict.” Paradox sighed, then added, “I just don’t feel right about ending the representation.”

“Your gut is right on this one,” Ethox encouraged. “Ending our representation of Jay is not the right answer—and it will not work to cure the conflict.”

“Really? I thought a lawyer could undertake a representation adverse to a former client, as long as the matter being undertaken is not related to the prior matter.”

“You are correct about being able to undertake a matter adverse to a former client, as long as the matter is not the same as or substantially related to the legal services provided to the former client,” Ethox agreed. “This principle is stated in Rule 1.9(a) and (b).

“But Rule 1.9 is not the problem. Rather, when a lawyer seeks to terminate a client-lawyer relationship to take on a matter adverse to the client, the lawyer is committing a potential breach of the fiduciary duty of loyalty owed to that client.

“Therefore, under what is known as the ‘hot potato doctrine,’” Ethox continued, “a lawyer may not end a client relationship—or ‘drop a client like a hot potato’—to take on a representation adverse to that client.

“If the lawyer does try to drop the client, the client may be treated as a still current client, and Rule 1.7—not Rule 1.9—will be used to analyze whether the lawyer may undertake the representation.”

Paradox groaned. “I guess I need to tell Senior Partner about the hot potato doctrine.”

“If you want some help explaining,” Ethox reassured, “I think I can help you a bit.”

“That would be wonderful,” Paradox voiced appreciation. “Let’s get this over with right away.”

“I am with you,” Ethox responded, following Paradox out of the office and down the hall toward Senior Partner’s corner office.

Michael Downey

The author is a legal ethics lawyer and founder of Downey Law Group LLC. He has also taught legal ethics at Washington University School of Law for more than a decade.