Ethics Opinion 292
Conflict of Interest: “Thrust Upon” Conflict
Where a law firm is providing ongoing representation of a client with respect to an identifiable set of legal issues involving common parties, facts, theories and claims, that representation should be viewed as a single representation for purpose of applying the “thrust upon” conflict provision of Rule 1.7(d) even though multiple legal proceedings may be involved. Thus, if a new proceeding that meets these criteria arises in which the interests of another law firm client are directly adverse to the interests of the client that is the subject of the ongoing representation, the law firm may rely upon Rule 1.7(d) to continue its representation even in the absence of client consent.
- Rule 1.7 (Conflict of Interest: General Rule)
- Rule 1.16 (Declining or Terminating Representation)
A law firm whose attorneys are subject to the Rules of the District of Columbia Bar and a current client of that firm (“Client A”) jointly have requested an opinion from this Committee as to whether the law firm may, consistent with DC Rule of Professional Conduct 1.7, continue to represent other clients of the firm whose interests have become adverse to Client A. Since 1993, the law firm has represented Client A as a defendant in a class action ERISA lawsuit filed in federal district court. Discovery in the ERISA lawsuit has been concluded, and if the lawsuit is not resolved through pending motions for summary judgment, the case is ready for trial.
In 1996, Client B retained the law firm to represent it on a regulatory issue involving access to certain facilities in its industry (“Competitive Access issue”). The law firm has represented Client B on this issue in seven distinct proceedings, including a federal district court lawsuit and a subsequent appeal, an FCC complaint proceeding, an FCC declaratory ruling proceeding, and several different FCC application proceedings. Some of these representations are still ongoing. In 1997, Client C retained the law firm to provide advice and legal services on another related but different access issue (“Direct Access issue”),1 and the law firm has represented Client C in three FCC proceedings involving this issue, including an ongoing FCC Notice of Proposed Rulemaking.
The law firm and Client A agree that there is no substantial relationship between the ERISA litigation in which the law firm represents Client A and the Competitive Access or Direct Access proceedings in which the law firm represents Client B or Client C. In 1998, Client A announced its intent to acquire a company that had been and continues to be adverse to Client B in the Competitive Access issue proceedings and to Client C in the Direct Access issue proceedings. Client A’s merger is still pending and is subject to various regulatory approvals, including FCC approval.
Upon learning of the merger, the law firm sought to obtain conflict of interest waivers so that it could continue to represent Clients B and C in matters involving Competitive Access and Direct Access issues where, following the merger, Client A would be directly adverse to Clients B and C.2 The law firm also sought a waiver to represent Clients B and C in the FCC proceeding reviewing Client A’s acquisition. Client B and Client C each agreed to provide the necessary conflict of interest waiver, but Client A refused to do so, consenting only to the law firm’s continuing general representation of Clients B and C on matters in which there was no direct adversity.
Disagreeing with Client A’s position, the law firm filed comments on behalf of Clients B and C in the FCC proceeding reviewing Client A’s acquisition. While neither Client B nor Client C opposed FCC approval of Client A’s merger, they both requested that the merger be conditioned in a manner that would effectively produce the relief they had been seeking in the various Competitive Access and Direct Access proceedings. Client A viewed these comments as adverse to its interests because in its view the relief requested would substantially impair the value of the company that it sought to acquire.
Client A believes that the law firm should withdraw from its representation of Clients B and C in connection with the FCC proceeding reviewing Client A’s merger. It asserts that it would be inappropriate under DC Rule 1.16(b) for the law firm to withdraw from its representation of Client A in the ERISA litigation. The law firm asserts that its continued representation of Clients A, B and C is permissible under the “thrust upon” provision of Rule 1.7(d) because there is no substantial relationship between the ERISA litigation in which it represents Client A and the FCC proceedings regarding Client A’s acquisition in which it represents Clients B and C. Alternatively, the law firm suggests that if withdrawal is necessary, the law firm should withdraw from the ERISA litigation because Client A created the conflict by its proposed merger and Clients B and C have attempted to resolve the situation by giving their consent to the multiple representation.
The law firm in fact offered to withdraw from representing Client A in the ERISA litigation and to compensate Client A for possible costs associated with retention of new counsel in that matter. When Client A rejected this proposal, asserting that withdrawal given the advanced stage of the ERISA litigation would be prejudicial, the law firm and Client A jointly filed this inquiry.
This inquiry involves interpreting the scope of the “thrust upon” exception provided by DC Rule 1.7(d) to the general prohibition against simultaneously representing two clients whose interests are directly adverse. This provision is a relatively new addition to the D.C. Rules of Professional Conduct and consequently has been the subject of only limited interpretation by this Committee. Nor does it appear that this issue has been addressed by other jurisdictions.
As a starting point, it is useful to identify the specific conflicts of interests presented here. Assuming Client A’s pending merger is successfully concluded, Client A will step into the shoes of the acquired firm and become directly adverse to Clients B and C in the Direct Access and Competitive Access proceedings. This will trigger a conflict of interest under DC Rule 1.7(b)(1), which prohibits representation of a client with respect to a matter that:
[I]nvolves a specific party or parties, and the position to be taken by that client in that matter is adverse to a position taken or to be taken by another client in the same matter, even though that client is unrepresented or represented by a different law firm.
Similarly, the law firm’s representation of Clients B and C in the FCC proceeding reviewing Client A’s pending merger also raises a conflict under Rule 1.7(b)(1) since the conditions to merger approval sought on behalf of Clients B and C are directly adverse to interests of Client A in unconditional approval of its merger.
Rule 1.7(d) provides an exception to the general prohibition of Rule 1.7 by addressing the situation in which a law firm is already representing two clients in unrelated matters and some direct adversity between the clients develops or becomes apparent for the first time. Rule 1.7(d) provides:
If a conflict not reasonably foreseeable at the outset of a representation arises under paragraph (b)(1) after the representation commences, and is not waived under paragraph (c), a lawyer need not withdraw from any representation unless the conflict also arises under paragraphs (b)(2), (b)(3), or (b)(4).
As noted, two separate conflicts involving the application of Rule 1.7(d) are presented by the inquiry here—(1) the representation of Clients B and C with respect to ongoing proceedings involving the Competitive Access and Direct Access issues in which Client A, following its acquisition, will be adverse to Clients B and C and (2) the representation of Clients B and C in the FCC proceeding reviewing Client A’s proposed merger, where Clients B and C wish to raise arguments and seek relief similar to that sought in other proceedings involving the Competitive Access and Direct Access issues but adverse to Client A’s interest.3
The application of Rule 1.7(d) to the first situation—adversity arising from Client A’s merger, which gives it for the first time an interest in ongoing proceedings in which the law firm has been representing Clients B and C—is straightforward. The law firm’s representation of Clients B and C in ongoing proceedings involving Competitive Access or Direct Access issues is precisely the situation that Rule 1.7(d) sought to address. There is no question that the law firm had been representing Clients B and C in the particular matter in which the conflict has arisen. The conflict was not reasonably foreseeable.4 At the time the law firm initiated its representations of Clients B and C in these proceedings, the other firm client, Client A, had no interest in the Direct Access or Competitive Access issues. Client A’s interest arose only after the representations of Clients B and C commenced, and although a waiver was sought, the conflict was not waived under Rule 1.7(c) by all clients.
In such a situation, Rule 1.7(d) provides that a law firm need not withdraw from any representation unless the conflict also arises under Rules 1.7(b)(2), (b)(3), or (b)(4), which does not appear to be the case here. Thus, after seeking, but failing to obtain Client A’s consent, the law firm is permitted under Rule 1.7(d) to continue representing Client A in the ERISA litigation and to continue representing Clients B and C in the ongoing Competitive Access and Direct Access proceedings, subject, of course, to the right of any client to terminate the firm’s representation.
A more difficult issue is posed by the law firm’s representation of Clients B and C in the FCC proceeding reviewing Client A’s proposed merger. The law firm asserts that its ongoing representations of Client B and Client C in various proceedings relating to the Competitive Access and Direct Access issues constitute, for each client, a single and continuing representation in pursuit of a sole objective—success for that client with respect to a specific access right. According to the law firm, the FCC proceeding reviewing Client A’s merger is part of this continuing representation because it permits a federal regulatory agency to consider the Competitive Access and Direct Access issues and offers an additional opportunity to obtain the relief Clients B and C seek. The law firm therefore urges that its efforts on behalf of Clients B and C respectively constitute a single ongoing “representation,” comprised of a series of efforts to pursue a single objective in multiple forums, that should be viewed as a single and identifiable “matter.”5 Thus, for purposes of Rule 1.7(d), it views the “outset of a representation” 5 here as the first action taken on behalf of Client B or Client C with respect to their particular access issue, and the subsequent initiation of additional discrete proceedings involving that access issue does not give rise to a new representation.
Client A urges a narrower view of the phrase “outset of a representation” as used in Rule 1.7(d). It views the FCC merger proceeding as a new representation on which the law firm’s ability to represent Clients B and C was precluded by their adversity with Client A. According to Client A, the fact that the Competitive Access and Direct Access arguments that the law firm may have advanced on behalf of Clients B and C in prior FCC or federal court proceedings also could be raised in the FCC merger proceeding does not make the FCC merger proceeding part of an ongoing representation that falls within Rule 1.7(d)’s narrow exception.
In determining the scope of Rule 1.7(d), the meaning of the phrase “outset of a representation” is critical. Unlike “matter,” the term “representation” is not defined anywhere in the DC Rules of Professional Conduct. The phrase “outset of a representation” was considered previously by this Committee in Opinion 272, dealing with so-called “Hot Potato” conflicts, where we concluded:
While it would not be unreasonable to interpret the phrase “outset of a representation” to mean the client’s initial retention of the lawyer on any matter, it is clear from the context of Rule 1.7(d) that the drafters had in mind the outset of representation in a discrete matter in which the unforeseen conflict arises. The narrow exception to Rule 1.7(b) carved out by the new subsection (d) addresses the situation in which one client potentially has the power to disable the law firm from its ongoing representation of another client in a particular matter already in progress, simply by intervening in the proceeding with separate counsel. . . . It would be a considerable step beyond this narrow class of “thrust upon” conflicts to extend Rule 1.7(d) to situations where . . . there is a current general “representation” of a client but the matter in which adversity develops has not yet begun.
The factual situation considered in Opinion 272 was distinct from the inquiry here. A law firm had represented Client X for a considerable period of time with respect to matters regulated by a specific regulatory agency (“Agency A”). The law firm had successfully represented Client X in a concluded, non-adversarial matter before Agency A and thereafter matters regulated by Agency A. The firm also was representing Client Y on unrelated contract matters when Client Y (represented by separate counsel) initiated an adversarial action against Client X before Agency A. Client Y refused to consent to the law firm’s representation of Client X in that action.
The Committee refused to apply Rule 1.7(d) to the situation presented in Opinion 272, concluding that “ there was not a discrete matter in existence prior to the time Client [Y] initiated the proceeding against Client [X]” and that the adversarial proceeding before Agency A constituted a new matter.6 While Opinion 272 makes clear that the “thrust upon” exception of Rule 1.7(d) does not extend to situations where there is a general representation of a client “but the matter in which adversity develops has not yet begun,” it does not shed further light on the key phrases on which it relies, including “discrete matter” and “particular matter already in progress.”
In the factual situation considered in Opinion 272, there was no ongoing representation in a particular matter, no existing adversity, nor even any identifiable opposing party. It is therefore necessary to consider how Rule 1.7(d) should be applied in the more complicated situation presented here, where there is an ongoing representation on a discrete legal issue with identifiable opposing parties that may be raised in multiple proceedings (possibly in more than one forum) and that, depending on one’s perspective, can be characterized as one representation or multiple representations.
It is a reality of modern legal practice that the same issues involving the same parties, common facts, similar arguments and legal theories, opposition from the same interests, and seeking identical relief may be asserted (simultaneously or serially) in multiple proceedings. In litigation matters, there may be multiple iterations of the same claim brought in multiple proceedings; in regulatory practice, it is common to have multiple appeals from a single regulatory decision. When a successful removal petition results in the transfer of a lawsuit from state to federal court, there have been two discrete proceedings with different case numbers and before different judges, but is hard to view this as giving rise to two separate representations.
If “representation” were defined simply by the existence of multiple proceedings with each new proceeding viewed as a separate “discrete matter,” Rule 1.7(d) would have a relatively narrow application and, in the absence of conflict waivers, there might be numerous situations in which a client would be precluded from representation by counsel of its choice. Treating each proceeding as a separate matter (and thus new representation) could allow an opponent to disrupt a law firm’s ongoing representation of a client for strategic purposes merely by initiating a separate proceeding that continues an existing controversy in a new forum. If existing counsel were unable under Rule 1.7(d) to represent its client in that newly initiated proceeding, the client would face the unenviable choice between retaining multiple counsel (incurring the costs and coordination problems of doing so) or replacing its original counsel due to a conflict associated with a specific aspect of the overall dispute.
Yet a more expansive reading of the term “representation”—one that concludes that so long as some issues, parties, underlying claims or defenses are the same there is a single “representation”—has the potential for turning the narrow exception of Rule 1.7(d) into a broader opportunity for law firms to undertake representation adverse to existing clients. It is easy to conceive of how Rule 1.7(d) might be abused by asserting some tortured linkage to an ongoing representation. Moreover, interpreting Rule 1.7(d) to extend to multiple proceedings makes it inevitable that difficult questions of application will arise. What decree of commonality is required to link various discrete proceedings into a single matter. For example, does the fact that a law firm is the regular counsel for a client with respect to a particular type of lawsuit permit the firm to represent that client if any new lawsuit of that type is brought by another firm client?
It is probably impossible to state a single rule that addresses all situations in which “thrust upon conflicts” claims are raised. However, we believe that for purposes of applying Rule 1.7(d), the concept of “representation” contains enough flexibility to extend beyond a single discrete proceeding to multiple proceedings that raise a particular identifiable issue or issues and involve common facts, legal theories, claims, defenses and parties.7 For purposes of Rule 1.7(d), the “onset of representation” will be deemed to occur when the law firm first begins to provide legal services that involve the same facts, legal theories, claims, defenses and parties. If the conflict of interest was not reasonably foreseeable at that point, the law firm can continue its representation without client consent even if a conflict with another firm client is triggered by a subsequent legal proceeding.
We believe this approach is consistent with our prior holding in Opinion 272. There, the primary (and, indeed, the sole) linkage between the discrete proceedings was that they involved the same administrative agency before which the law firm had long represented the client. There was no adversity until the firm’s other client initiated the proceeding that was the source of the conflict. Thus, it was not possible to find a single representation for purposes of Rule 1.7(d). There were no common facts, issues, or adverse interests.
Applying this analysis to the inquiry here, we find that the law firm’s representation of Clients B and C on Competitive Access and Direct Access issues encompasses all proceedings—existing and future—in which these issues are legitimately raised and in which the same parties, legal theories, claims and defenses are present. It includes the FCC proceeding reviewing Client A’s proposed acquisition, where the FCC can condition the merger approval in a way that would achieve Client B’s and Client C’s Competitive Access and Direct Access relief.8 Thus, even in the absence of consent from Client A, the law firm can continue to represent Client A in the ERISA litigation and Clients B and C in the Competitive Access and Direct Access proceedings.9
We caution that the underlying commonality of facts, issues and parties required to find a single “ representation” must be objectively verifiable. Efforts to abuse Rule 1.7(d) by artificially interjecting specious issues or claims into a proceeding in order to claim a preexisting representation will not be sufficient to overcome general client conflict principles contained in our Rules.
For the reasons discussed above, we believe that the “thrust upon” conflict provision of Rule 1.7(d) extends to the representation of a client with respect to an identifiable set of legal issues involving common facts, legal theories, claims, defenses and parties. Notwithstanding the fact that additional discrete proceedings raising those issues are subsequently initiated by another client of the law firm, the law firm may rely on Rule 1.7(d) to continue to represent both clients even in the absence of client consent.
Inquiry No. 99-1-2
Adopted: June 15, 1999
1. No conflict of interest is presented by the law firm’s simultaneous representation of Client B and Client C since these clients’ interests are not in any way adverse on the Competitive Access and Direct Access issues.
2. Even though there would be no potential for Client A’s confidential information obtained in connection with the ERISA litigation to be useful in connection with the law firm’s representation of Client B or Client C on the Competitive Access or Direct Access issues, the law firm also agreed to implement appropriate ethical screens to prevent any confidential information flow within the law firm.
3. Although the inquiring parties’ specific focus is on the conflict issues presented by the FCC merger proceeding, an analysis of Rule 1.7(d)’s application to the conflict presented by the Competitive Access and Direct Access proceedings provides insight into how this rule was intended to operate.
4. Comment 22 to Rule 1.7 emphasizes that in determining whether a conflict is reasonably foreseeable, “the test is an objective one,” focusing on such factors as whether the lawyer has an adequate conflict-checking system in place.
5. As defined in the terminology section of the D.C. Rules of Professional Conduct, “matter” is “any litigation, administrative proceeding, lobbying activity, application, claim, investigation, arrest, charge or accusation, the drafting of a contract, a negotiation, estate or family relations practice issue, or any other representation, except as expressly limited in a particular Rule.” DC Rules, “Terminology.”
6. DC Bar Opin. 272 (May 21, 1997). The Committee went on to find, however, that the concerns underlying the enactment of Rule 1.7(d) were implicated because Client Y’s initiation of an action against Client X in a forum in which Client X would reasonably have expected to be able to avail itself of the services of its long-standing law firm would produce the same “substantial prejudice” toward Client X that the “thrust upon” rule sought to address. Opinion 272 thus allowed the law firm to continue to represent Client X by withdrawing from its representation of Client Y pursuant to Rule 1.9. While noting that “[e]ach situation must be analyzed on its facts,” the opinion emphasized that “the more the potential conflict was caused by the actions of the attorney for the benefit of the attorney and/or a prospective or other client, the less justifiable will the firm’s effort to withdraw and to treat the conflict under the principles applying to former clients.” Op. 272.
7. Our analysis conforms to the approach taken by the Alabama Supreme Court in AmSouth Bank v. Drummond Company, Inc., 589 So.2d 715 (Ala. 1991), where the court recognized that the Rules of Professional Conduct are “rules of reason” and require employing a “common sense” approach to questions of lawyer conduct. Requiring that each new proceeding be viewed as a discrete “representation” seems contrary to this common sense approach.
8. The “same parties” requirement is satisfied in the FCC merger proceeding because the company Client A seeks to acquire is the party adverse to Clients B and C in the Direct Access and Competitive Access proceedings.
9. Client A of course, remains free to discharge the law firm and seek new counsel for the ERISA litigation.