Risk Update

Conflicts & Confidentiality Concerns — Navigating “Tricky” New Business Intake Scenario

Mark Hinderks, head Stinson LLP’s legal ethics and professional responsibility practice writes:  “Navigating a Tricky Matter-Intake Problem Involving a Conflict and Confidential Information” —

  • “A former law school classmate newly appointed as a corporate general counsel called to ask me to represent his company to file a preemptive suit in a favorable forum against a competitor.”
  • “He told me confidentially that based on internal documents, they believe the suit probably only has a 40-60% chance of success, but by getting to the favorable forum, they hope there will be sufficient pressure on the opponent to lead to an early and more favorable settlement.”
  • “I ran a conflict check and discovered that the firm (not involving me) currently represents the opposing party in a small, unrelated real estate matter. What can I do to be able to go forward? This could be a really big ongoing client.”
  • “At first read, this appears to be a straightforward Model Rule 1.7 concurrent conflict concerning unrelated matters that could be ameliorated by an appropriate waiver request to each client, with approvals confirmed in writing. The twist here is that you may be unable to effectively ask for the waiver. In order for a waiver of a conflict to be effective under Rule 1.7(b), there must be ‘informed consent.’ That requires that ‘each affected client be aware of the relevant circumstances and of the material and reasonably foreseeable ways that the conflict could have adverse effects on the interests of that client.’ Rule 1.7, Cmt.18.”
  • “Here, the company that wishes to hire you is trying to beat the competitor to the courthouse (and thereby establish the first filing in a favorable forum different than the one the competitor (the firm’s current client) would choose.”
  • “This puts you in a bit of a ‘Catch-22.’ You would have to disclose to your firm’s existing client the nature of the matter and the prospective client’s identity to obtain ‘informed consent’ and, therefore, an effective waiver.”
  • “Because the prospective client’s strategy here is a preemptive surprise attack that requires confidentiality until executed, you would need your prospective client’s consent to disclose the relevant information to your existing client. But it is likely that your prospective client will not agree to your disclosure of that information to their opposition, because their opponent will then be able to withhold consent long enough, or otherwise act quickly to file their own action in a different forum.”
  • “This likely means you must decline the matter, at least for now. It is possible that you could seek informed consent from the existing real estate client to be involved later (with the approval of the prospective client to make necessary disclosures) after the suit has already been filed and the reason for secrecy about the identity of the client and the matter has passed.”
  • “But, you also have another issue. You have received confidential information from the prospective client about their race-to-the-courthouse strategy and their in-house assessment of the strength of their case before running a conflict check, and before specific agreement to be their counsel. By doing so, you have already placed yourself and the firm in a dilemma concerning duties to the existing real estate client.”
  • “The best practice when discussing a new matter with a prospective client (or a current client) is to perform and clear a conflict check before acquiring any information the prospective client considers to be confidential. The most direct way to do this is to state to the prospective client at the time of initial contact to only provide you with the basic information necessary to perform the conflict check…”