Ethics Spotlight: Navigating Conflicts of Interest in the ‘Great Resignation’

March 2022

By Carole J. Buckner

According to Thomson Reuters’ 2022 Report on the State of the Legal Market, one of the most significant tasks law firms are facing in the current year is recruiting and retaining legal talent, once again putting lateral hiring, and the related conflicts of interest involved, in the spotlight.

A lateral attorney often brings some clients with them and also leaves some clients behind, implicating both current and former client conflicts of interest. Current client conflicts are governed by, among others, rule 1.7 of the California Rules of Professional Conduct. According to comment [1] to that rule, “absent consent, a lawyer may not act as an advocate in one matter against a person the lawyer represents in some other matter, even when the matters are wholly unrelated. (See Flatt v. Superior Court (1994) 9 Cal.4th 275 [36 Cal.Rptr.2d 537].)” In general, under rule 1.10, the conflicts of interest of one lawyer that arise from representation of a client are imputed to all lawyers within the firm. Therefore, lateral lawyers may not bring a client into their new firm where the firm already represents an adverse party to that client, even in an unrelated matter, without informed written consent of both clients.

The clients the lateral leaves behind when joining a new firm implicate former client conflicts of interest under rule 1.9, which provides that a lawyer who formerly represented a client shall not represent a new client in the “same or a substantially related matter” if the new client’s interests are materially adverse to those of the lawyer’s former client, absent informed written consent from the former client. Again, imputation extends this prohibition across lawyers in the same firm. Clients a lawyer leaves behind when departing from a former firm may create conflicts of interest in matters at the new firm that are the same or substantially related. Thus, a lateral lawyer’s former representation of a client must be vetted against the active clients of the firm the lawyer is joining. Any overlap must be evaluated by considering whether matters are the same or substantially related. Whether these types of conflicts can be resolved through screening is discussed further below.

Because rule 1.9(b) extends to certain matters handled by other lawyers in the firm the lateral lawyer is leaving, the new firm must check for those conflicts. As to these matters, the lawyer has a conflict of interest only if the matter handled by the lawyer’s former firm was the same as or substantially related to a matter handled by the lawyer’s new firm, represented a client materially adverse to the new firm’s client, and most importantly, the new lawyer had acquired material confidential information. Therefore, the new firm must examine any matters the new firm is handling which involve the lateral lawyer’s soon-to-be-former firm. 

If a lawyer had somewhat minor involvement in a substantially related matter, and the conflict arises from the lawyer’s association with the prior firm, it may be possible to resolve the conflict through screening. Rule 1.10 provides that, even if the former matter the lawyer worked on is the same or substantially related to a matter the new firm is handling for an adverse party, lawyers in the new law firm may still represent their client if the lateral lawyer did not “substantially participate” in the prior matter, is screened from participation in the matter at the new firm, is apportioned no part of the fee, and notification is promptly given to the former client. In determining whether a prohibited lawyer’s prior participation was “substantial” a number of factors are considered, including the lawyer’s “level of responsibility in the prior matter, the duration of the lawyer’s participation, the extent to which the lawyer advised or had personal contact with the former client, and the extent to which the lawyer was exposed to confidential information of the former client likely to be material in the current matter.” Rule 1.10(a)(2), and comment [1]. Navigating the elements of the rule requires precision.

The application of these concepts is illustrated by Klein v. Facebook, Inc., 2021 WL 3053150, No. 20-CV-08570-LHK (N.D. Cal. 7/20/2021). In Klein, Facebook moved to disqualify plaintiff’s counsel in an antitrust matter. A lateral lawyer had joined the plaintiff’s firm after representing Facebook in an FTC investigation. The questions before the court were whether the lateral lawyer had participated in a substantially related matter, whether the screen implemented by the new firm was timely and effective in resolving the conflict, and whether prompt written notification had been given to Facebook. Both sides conceded that the FTC matter the lateral lawyer had worked on at his prior firm was substantially related to the antitrust matter being handled by the new firm. The court examined the factors enumerated in rule 1.10 and its related commentary. The lateral lawyer involved was a fourth-year associate with mid-level responsibility in the FTC investigation while at his former firm, who had some exposure to information that was material to the antitrust matter. The lateral had billed 800 hours to the FTC matter over about six months, with some client contact.

The lateral lawyer joined the new firm in June of 2020 and he reported his involvement in the FTC matter one day after joining the new firm. He was screened from the antitrust case in November 2020 with a firm-wide email sent to implement the screen, advising the lawyers at the new firm that the lateral could not have any contact with anyone regarding the antitrust case. The lateral’s access to all documents pertaining to the antitrust case was restricted. The screen was listed on the new firm’s Intranet page for all attorneys. The lateral lawyer never worked on the antitrust case, never accessed documents in the case, and never discussed the case with anyone working on the case, other than a brief discussion for the purposes of conflicts analysis.

One issue addressed in this case was why there had been a five-month delay in implementing the screen. In connection with the motion to disqualify, the lateral lawyer’s new firm took the position that there was “nothing to screen” until shortly before it filed the complaint in the antitrust case. However, the filings seeking appointment of a co-lead counsel for the class indicated that the firm had “conducted an exhaustive factual and legal investigation that first began in 2019” and that the firm had “spent months and years” thinking about the “nitty gritty” details of the antitrust case. Based on this evidence, the court held that the firm had not implemented a screen in a timely manner. In addition, the notice of screen required by rule 1.10 to be given to the former client “promptly” was given four months later in March 2021, after Facebook raised the conflict of interest issue at a hearing. The court held that prompt notice of the screen had not been given. 

A second issue addressed in this case was whether the lateral participated “substantially” in the matter at his former firm. Ultimately, the court answered in the affirmative, and granted the disqualification motion. The court found that the lateral had confidential information, had drafted legal memoranda and was exposed to witness interviews, responded to an FTC demand, and worked with consulting and testifying experts. He had reviewed documents, attended team meetings and participated in regular calls including calls with in-house counsel, and received emails in which lead counsel shared his thinking on litigation and trial strategy. That information was likely to be relevant to the pending antitrust matter.

The disqualification of counsel in the Klein matter illustrates why it is necessary to handle lateral hiring carefully, including evaluation of the factors in rule 1.10, as well as prompt screening and timely written notification to the former client.

In addition, for information on how to establish an effective ethical screen, we encourage you to read Formal Opinion No. 2021-1 of the Ethics Committee of the California Lawyers Association, which can be found here: https://calawyers.org/california-lawyers-association/ethics-committee-formal-opinion-no-2021-1/.

Klein and the CLAEC’s Opinion provide timely lessons as law firms navigate the Great Resignation.

Carole J. Buckner is a partner and general counsel at Procopio, Cory, Hargreaves & Savitch LLP. She is a member of the Ethics Committee of the California Lawyers Association. The views expressed herein are her own.