Ethics Spotlight: Disqualifying In-House Counsel

September 2024

By Scott B. Garner

California lawyers generally are familiar with the conflict of interest rules and the sometimes harsh consequences of those rules.  Those consequences can include disqualification of a lawyer or an entire law firm.  They also can include a sometimes insurmountable hurdle to a lawyer moving to a new law firm.  But those rules, and those consequences, are not limited to lawyers in private practice on their own or at a law firm.  They apply equally to lawyers working as in-house counsel for a company.  

The conflict rules most often at issue for lawyers are Rules 1.7, 1.9, and 1.10 of the Rules of Professional Conduct.  Rule 1.7 addresses conflicts of interest with current clients.  It provides that, absent informed written consent of all affected clients, a lawyer shall not represent a client if that representation would be directly adverse to another current client, whether or not the two matters are related, or if there is a significant risk that the lawyer’s representation of a client will be materially limited by the lawyer’s responsibilities to another client.  And while Rule 1.7 can give rise to difficult conflict situations, sometimes leading to disqualification, Rule 1.7 is less likely to adversely affect in-house counsel.  That is because in-house counsel typically has only one client – the company for whom she works.  Rule 1.13 makes this clear, stating that “[a] lawyer employed . . . by an organization shall conform his or her representation to the concept that the client is the organization itself. . . .”  Thus, an in-house lawyer typically would not be in a position to take on a matter adverse to her current employer.

Rule 1.9, however, is more likely to be in play for in-house counsel.  Rule 1.9 addresses conflicts with former clients.  Rule 1.9(a) precludes a lawyer, absent informed written consent from the former client, from taking on a representation that is the same or substantially related to a matter on which the lawyer herself previously worked and where the interests of the former client are materially adverse to the interests of the client in the new matter.  Rule 1.9 could be relevant where an in-house lawyer moves from one company to another because her old employer is a “former client” under Rule 1.9.  Therefore, she cannot take on a matter for her new employer that is the same as or substantially related to a matter she worked on for her former employer/client where the former and new employers’ interests are materially adverse.  An example may be helpful.

Heidi Lawyer worked for Former Company, handling, among other things, intellectual property issues, including personally supervising the outside law firm representing Former Company in several patent litigation matters.  One of the patent litigation matters is against New Company.  For reasons unrelated to the patent litigation matter, Heidi Lawyer applies for and accepts a new job with a higher pay as a member of New Company’s legal department.  Application of Rule 1.9 is pretty straightforward in this circumstance.  Heidi Lawyer has a conflict of interest and cannot work on the patent litigation matter now that she is with New Company.  The matters are the same, and Former Company’s (the former client) interests are materially adverse to New Company’s, as they are adverse parties in a lawsuit.  In these circumstances, what are Heidi Lawyer’s ethical obligations?

One place to start is to consider a similar situation, but rather than moving from Former Company to New Company, imagine that Heidi Lawyer, while at a law firm serving as outside litigation counsel for Former Company, worked on the patent litigation against New Company.  It should be obvious that Heidi Lawyer could not quit her law firm and move to the law firm that is representing New Company in the same patent litigation matter without violating Rule 1.9.  Thus, to move to the new law firm, Heidi Lawyer would need to obtain informed written consent from Former Company and likely be screened from the patent litigation matter.  But it may not be that simple.  

Rule 1.10 provides that, where one lawyer (like Heidi Lawyer here) is ethically prohibited from representing a client (here, New Company) due to a conflict of interest, all lawyers at the same law firm also are ethically prohibited.  In other words, Heidi Lawyer’s conflict of interest is “imputed” to all of the lawyers in the law firm.  And, although Rule 1.10 allows an ethical screen to avoid a conflict in some limited circumstances, it likely would not help Heidi Lawyer in this situation.  That is because Rule 1.10 disallows an ethical screen to avoid a conflict of interest where the conflicted lawyer substantially participated in the matter.  So, if Heidi Lawyer substantially participated in the patent litigation while employed at Former Company (and the hypothetical facts described above indicate that she did), she cannot be screened from the patent litigation matter in order to save her law firm from also being disqualified.  Accordingly, Heidi Lawyer could not even be hired by the law firm representing New Company in the patent litigation matter unless Former Company gives its informed written consent.  And while that informed written consent could have conditions – for example, Former Company could consent to Heidi Lawyer moving law firms provided she was screened from the patent litigation matter – the move simply could not happen without consent.  In other words, a “nonconsensual screen” is not an option in this situation.

The situation is not very different when we switch the facts back to Heidi Lawyer being an in-house lawyer for Former Company before trying to move to New Company (or, for that matter, if she tried to move from Former Company’s outside litigation firm to New Company).  Under the Rules of Professional Conduct, an in-house legal department is treated no differently than a law firm.  In fact, Rule 1.0.1 expressly defines “firm” or “law firm” to include “lawyers employed in . . . the legal department, division or office of a corporation.”  Accordingly, just as Heidi Lawyer would be ethically prohibited from moving from the law firm representing Former Company to the law firm representing New Company, she would be ethically prohibited from moving from in-house counsel in Former Company’s legal department to in-house counsel in New Company’s legal department.  And, just like the situation with the two law firms, Heidi Lawyer likely could not cure her conflict created by moving to New Company by being screened from the patent litigation matter, absent Former Company’s informed written consent.

An in-house conflict like the one discussed herein creates one more potentially messy outcome.  Going back to the law firm situation, if Heidi Lawyer joined her new law firm notwithstanding the conflict, her new law firm could find itself on the wrong side of a motion to disqualify filed by Former Company.  If that motion were granted, New Company would have to find itself a new outside law firm to represent it in the patent litigation.  (This article does not address any potential claims Former Company might have against the law firm that apparently chose Heidi Lawyer over its client.)  When Heidi Lawyer moves from Former Company to New Company, the situation is no different.  Assuming Former Company does not give informed written consent for Heidi Lawyer to move her employment to New Company, New Company’s entire legal department would be at risk of disqualification in the patent litigation, based on the imputation rule, Rule 1.10.  This may seem odd to some, but that is the result of a rational application of the Rules of Professional Conduct to a “law firm” that is an in-house legal department.  It also is the result that occurred in City and County of San Francisco v. Cobra Solutions, Inc., 38 Cal. 4th. 839 (2006), where an entire city attorney’s office was disqualified because of a conflict the newly elected City Attorney brought over from his private law firm.

So how would that work in practice – that is, if New Company’s entire legal department were disqualified from being involved in the patent litigation?  It would mean the legal department could not be involved in the matter, including supervising outside counsel.  Thus, the outside law firm no longer could report to anyone in New Company’s legal department and instead would have to report to a non-lawyer employee or officer at New Company.  This rather draconian result undoubtedly would be an important consideration for New Company in deciding whether to hire Heidi Lawyer.

In sum, the Rules of Professional Conduct, including the conflict of interest rules, apply to in-house lawyers just as they do to outside counsel.  Accordingly, in-house counsel and their company clients should carefully consider potential conflicts of interest when in-house counsel are moving from one company to another.

Scott B. Garner is a partner at Umberg/Zipser LLP in Irvine, California, where he practices complex business litigation, with a focus on representing lawyers and law firms.  Mr. Garner is the current Vice Chair of the California Lawyers Association Ethics Committee and Co-Chair of the Orange County Bar Association’s Professionalism and Ethics Committee.  He also is a former Chair of the California State Bar’s Committee on Professional Responsibility and Conduct and the former President of the Orange County Bar Association and the Orange County Chapter of the Association of Business Lawyers.  The views expressed herein are his own.